Does cultural diversity hinder the implementation of IMF-supported programs? An empirical investigation

Abstract

Do ethno-linguistic divisions in a country hamper the implementation of IMF-supported programs? We construct a new measure of implementation and compliance with IMF programs approved during the 1992–2014 period covering 104 countries. Using several measures of diversity, we find that higher levels of ethno-linguistic and cultural fractionalization affect the probability of successful implementation of IMF conditions. Our results show that diverse preferences and coordination failures due to ethnic and cultural diversity undermine the successful implementation of IMF programs. Furthermore, we find that ethno-linguistic fractionalization weakens the implementation of ‘hard’ IMF conditions relative to ‘soft’ conditions. Our findings also show that ethno-linguistic divisions do not affect the implementation of IMF conditions in autocracies as opposed to democracies. These findings are robust to addressing endogeneity concerns using an instrumental variable approach and to a number of alternative specifications, data sets, and approaches.