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Global Development and Poverty Reduction

Global Development and Poverty Reduction

The Challenge for International Institutions

International Institutions and Global Governance series

Edited by John-ren Chen and David Sapsford

At the beginning of the third millennium, underdevelopment and poverty continue to remain critical problems on a global scale. The purpose of this volume is to explore the various ways in which the institutions of the global economy might rise to the challenges posed by the twin goals of increasing the pace of global development and alleviating poverty.

Chapter 6: The Effects of IMF Lending and Freedom on the Growth Performance of Developing Countries

Sevinc Mihci and Hakan Mihci

Subjects: development studies, development economics, economics and finance, development economics, international economics


Sevinç Mihci and Hakan Mihci INTRODUCTION Neither the inquiry into the causes of the wealth of nations, nor the notion that institutions affect economic performance, is a new thing for economists. Towards the end of the eighteenth century, Adam Smith had already stated that the road to economic prosperity ought to be cleared of interventionist activities. From classical economists to the ‘old institutionalists’, many have written on the role institutions play in reducing poverty and raising welfare. For one, Douglass North (1990) has described the connection between institutions and economic performance. Debate over institutions and economic outcomes has witnessed considerable controversy as to which institutional regulations are most conducive to sustainable growth. The past decade’s renewed interest in growth has yielded a vast literature, theoretical as well as empirical, concerning the various potential determinants of growth, one which has produced no consensus, of course. In fact, institutions are particularly important for inducing economic agents to engage in productive activities that augment total output rather than simply redistributing it among activities. By ‘productive activities’, we mean activities that result in such an increase in output as to enhance consumption and/or investment. The stimulus for engaging productive activities, on the other hand, could originate in the better functioning of institutions. In this respect, international institutions play the role of defining the global rules of the game. This is particularly important for the developing world, where the (counter-) currents of globalization are more intense. Alternatively speaking, institutions are supportive of overall welfare...

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