The Impact of IMF Program on Corruption and Bureaucratic Quality in Developing Nations

Nowadays, corruption plays an important role in both national and international stages by influencing the economy, politics, and international relations. From the global perspective, international organizations usually step in to assist developing nations with foreign aid to develop their infrastructure and basic facilities. International Monetary Fund (IMF) has an impactful power to foster global financial cooperation and secure the economic stability of developing nations. Therefore, currently, there is debate on whether the participation of the IMF can reduce corruption or cause more corrupt behaviors. In this research, I propose bureaucratic quality as a key political indicator in the relationship between corruption and attending IMF programs aligning with functionalism in political psychology. I choose bureaucratic quality because, in general, high bureaucratic quality reflects strong government effectiveness with less corruption. Furthermore, this research aims to see if IMF programs can advance or weaken the bureaucratic quality of developing nations. In order to test it, I raise two hypotheses. H1: participation in IMF programs will increase corruption in developing nations. H2: Attending IMF programs will decrease the bureaucratic qualities of developing nations. To examine them, I conduct quantitative research in data analysis using a dataset covering 178 developing nations from 1971 to 2014. I find that both H1 and H2 are confirmed that attending IMF programs will actually increase corruption by weakening the bureaucratic quality. Moreover, there is an interaction between bureaucratic quality and IMF programs in the level of impact on corruption for developing nations. In the academic field,the findings point out that the effectiveness of IMF programs depends on the level of bureaucratic quality, and it does not always reduce corruption in developing nations. A high bureaucratic quality can have more corruption by attending IMF programs since corruption does not means the project will be destroyed. In fact, the mission can be done effectively and timely to cover the corruption according to functionalism. It points out the importance of political psychology in studying such complicated problem. In practice, these findings emphasize that governments from developing nations should realize that bureaucratic quality and corruption do not always cancel each other when governments seek to increase bureaucratic quality and reduce corruption simultaneously. This research is unique in a combination of theory: functionalism, and a quantitative method: Inverse Probability Treatment Weighting, which has not been applied in previous works.