As Asian economies are facing massive financial crises, many governments are running to the International Monetary Fund (IMF) for billions in emergency financial aid. In exchange for this money, the IMF typically demands that these nations liberalize their closed financial systems and undertake a host of reforms calling for less government spending, slower economic growth, a pledge not to prop up weak banks and companies, acceptance of higher unemployment rates, and a number of other unpopular measures.

IMF bailout has generated a great deal of controversy, with many economists accusing the IMF of making these crises worse, deeper, and longer than they otherwise would have been. Prominent critics such as Joseph Stiglitz have called for the creation of an international bankruptcy regime to provide sovereign debtors with a mechanism to renegotiate their debts.

Despite the considerable interest in the issue, the existing research on IMF bailout has produced mixed results, with some studies finding positive effects and others reporting negative or no effect at all. A significant part of this confusion may stem from the fact that a number of different methodologies are employed by researchers investigating the impact of IMF bailout on bailed-out countries.

A number of studies use a control country methodology in which the IMF loan is compared with an identical one extended to a non-bailed out, peer group of countries. This approach avoids the problem of the endogeneity bias inherent in most other studies of IMF bailout, but it has the disadvantage of limiting the range of possible comparisons to the few exogenous cases in which such an evaluation can be made.