IMF Lending and Economic Growth: An Empirical Analysis of Ukraine

TL;DR

This paper analyzes the causal relationship between IMF lending and Ukraine's economic growth from 1991 to 2010, finding short-term negative effects but potential long-term benefits if funds are used for reforms.

Contribution

It applies VAR and VEC methodologies to empirically assess the impact of IMF lending on Ukraine's growth, highlighting policy implications.

Findings

IMF lending negatively affects short-term growth

Long-term growth may improve with proper fund utilization

Empirical evidence supports reform-focused policy

Abstract

This study uses Vector Autoregression (VAR) Methodology as well as Vector Error Correction (VEC) Methodology to examine the existence and direction of causality between economic growth and IMF lending for Ukraine. The paper examines the IMF lending data for the period of 1991-2010. Robust empirical analysis indicates that IMF lending has a negative effect of on Ukraine's economic growth in the short term. Policy implications of this finding are that, despite short-run decline in economic growth, IMF lending can result in a long-run sustainable growth for Ukraine. For this, policymakers need to ensure that fund's money are used not only to cover budget's deficit, but also to finance institutional reforms.