A Public Choice Analysis of International Financial Institutions
The process of globalization is an event that has been debated heavily since the beginning of the rounds of the General Agreement on Trade and Tariffs (GATT) in the 1940ís. The world market is becoming more and more accessible to every nation that wants to take advantage of trade. Organizations such as the International Monetary Fund, World Bank, and World Trade Organization have been created in order to facilitate the ease of incorporation into the world market. I suggest that these three organizations, especially the International Monetary Fund, have the best interests of developed nations in mind when creating new policies. The policies that created by the International Monetary Fund create rents, in developing countries that can be exploited by the member nations. These rents have the ability to greatly increase the welfare of developed countries and also the ability to leave the developing countries economy in shambles, as we have seen in the East Asia Crisis of 1997. These policies led me to create my rent-seeking hypothesis which states: the decisions made by the International Monetary Fund, World Trade Organization, and World Bank have the effect of increasing the welfare of developed nations while at the same time decreasing the welfare of developing nations. As it sometimes happens in economic analysis, the rent-seeking hypothesis I set forth to prove has neither been refuted nor proven by the empirical analysis of my data. Our analysis has shown that the capital control policies put in place by the International Monetary Fund actually have no significant welfare effect on the lesser-developed nations as well as the developed nations. From my analysis there is no significant effect of the International Monetary Fundís capital controls on the growth or decline of a nationís GDP.