Effect of international credits on income distributions of developing countries : a panel data analysis

Today, international credits are among the key ingredients of the growth strategies pursued by the developing countries and the investigation of the relationship between international credits and income distribution is of special importance when the effectiveness of such flows are evaluated. In this study, we examine the effect of international credits, including those disbursed by the World Bank (WB) and the International Monetary Fund (IMF), on the income distribution in developing countries using data for years 1961-1996 for 63 countries, with maximum of 163 country-year observations and panel data estimation procedure. Our results briefly indicate that the WB loans do not appear to have reduced inequality in the countries in our sample. Comparing the performance of the WB group to that of the IMF, we find that credits originated from the IMF have a significant improving effect on the income distribution; which is stronger in the transition countries. Our results also point out that the presence of high rates of inflation appears to aggravate inequality. Additionally, our findings support the empirical literature that there exists a positive relationship between the level of income and inequality in the early stages of development. Moreover, evidence from our regressions show that economic growth has not got a significant impact on income distribution. Finally, our results show that the inclusion of the governance variables leaves the former results intact, that is improvement in the governance measures has not sufficed to contribute to equality in distribution in the countries examined in this study.