The US Financial Crisis, Emerging Markets and the Effects of IMF Loans

Authors

Bridgette Bain, University of New Orleans

Date of this Version

2012

Document Type

Article

Citation

Journal for the Advancement of Developing Economies 2012 Volume 1 Issue 4

doi:10.13014/K2VM49GJ

Comments

Copyright (c) 2012 JADE

Abstract

The main hypothesis of this paper is that emerging markets with outstanding debt from the IMF and their economies are more severely affected by shocks to the world than countries that do not undertake IMF debt. The effect that shocks have on these economies is also dependent upon the size of the debt borrowed. This paper analyzes the effects that outstanding IMF debt has on emerging markets. Essentially, it observes the responses of emerging markets to shocks in their economy when they are indebted to the IMF. We observe 35 emerging markets as defined by Dow Jones in 2010 and find that the GDP of the countries indebted to the IMF were more adversely affected by the US Financial Crisis than their counterparts who never indulged in IMF credit as well as those countries that were able to fully repay their debt. Our analysis indicated that not only being indebted to the IMF affected their ability to recover from the crisis but examines how the size of the debt played an integral role in their economy’s stability. Ultimately, we conclude that the IMF may be at fault in enabling emerging markets to collapse from accumulation of debt from which they are unable to repay.