IMF Lending and Economic Growth: An Empirical Analysis of Ukraine

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.