The Effects of Structural Conditions on Sectoral Productivity in South, East and South East Asia

Abstract

The debate over the IMF’s conditions for international lending has been ongoing since its inception, with growing concerns about its imposition on developing countries, particularly since the 1980s. In addition to assessing their normative influence, a critical focus is on understanding the economic impact of these conditions in recipient countries. While several studies have examined economic growth in response to aggregate conditionality, there is a lack of research that examines the impact of specific conditions on (i) disaggregated economic outcomes and (ii) productivity rather than economic growth. Based on three macroeconomic datasets on IMF conditions, (economic) development and productivity indicators, this study aims to identify the impact of conditions in 13 distinct policy areas on economy-wide as well as sectoral productivity over the period 1980-2019 in South, East, and Southeast Asian countries. While conditioning on a rich set of control variables, our results, derived from identification strategies designed to be robust to endogeneity, indicate heterogeneous sectoral responses to IMF conditions, consistent in sign across estimators, while economy-wide productivity is largely unaffected. Consequently, we derive sector-specific policy recommendations which are aligned with the effects of extant policy conditions on sectoral productivity.