The IMF, Structural Adjustment, and Poverty: A Cross-National Difference-in-Differences Analysis, 1980-2019

Abstract

The International Monetary Fund (IMF) has been one of the world’s most powerful international organisations in setting the parameters for economic reforms in the developing world. In this study, using annual cross-national data from 1980–2019, we investigate the impact of the IMF’s lending programmes on poverty incidence in participant countries. Departing from the prevailing practice of relying on instrumental variables, we employ a novel difference-in-differences approach that ensures clean comparisons between ‘treatment’ and ‘control’ units based on their programme participation histories. Besides providing a quantitative estimate of the average programme effect, we evaluate whether the IMF’s alleged anti-poverty focus in recent decades has made any difference. We find that IMF programme participation leads to large increases (4.2-5 percent of the total population) in the proportion of a country’s population living under the $6.85/day international poverty line (2017 PPP) and the country-specific Societal Poverty Line. We also find that the poverty reduction measures incorporated by the IMF into its programmes have not been effective in mitigating the poverty-increasing programme effects. Overall, our findings suggest that IMF programmes have been detrimental to the welfare of vulnerable populations in participant countries.