Who runs the IFIs?



The contrast among a globally motivated United States, a mercantilistic oriented Europe
and a financially focused Japan is probably too stark. More likely, financial
considerations are not totally absent from the lobbying efforts of Europe (or Japan)
within the IFI’s. Similarly, the desire to support exports is unlikely to be completely
absent in Japan’s influence-making process. We, therefore, consider a further
generalization of the model where, consistent with the segmented market framework,
Japan’s trade flows are allowed to affect IFI disbursements in Asia, an area where
Japan’s presence should be found as particularly significant. Similarly, financial factors
also are allowed to play a role for the European Union in Africa, developing Europe, and
the Middle East, all regions where EU banking exposure is substantial. More generally,
we test for regional patterns of influence separately for either trade and financial
exposures and for each of the three main shareholders.

For the European Union, we were able to identify a significant role of financial factors in
the case of developing Europe. This is consistent with the fact that the EU banking sector
greatly increased its exposure toward Central and Eastern European countries during the
1990s. Trade shares, on the other hand, turned out to play a statistically significant role
for all the five borrowing regions, thereby supporting the notion that mercantilistic
considerations are paramount in shaping the pattern of EU influence.

For Japan, even regional disaggregation did not help much in solving the puzzle of a
negative link between trade exposure and IFI lending. The finding of a negative and
significant coefficient for the trade variable carries over to a disaggregated specification
and, more specifically, to Japan’s trade exposure in Asia. We can only speculate as to the
reasons of this finding. One possible explanation is that for Japan exports and FDI to Asia
may have become substitutes. If so, a decline in trade exposure would be equivalent to
an increase in the stock of FDI, thereby explaining Japan’s interest in propping up
lending to the region. Regarding financial exposure, we found that all of the action came
from Asia, supporting the view that Japan’s influence does not extend significantly
beyond this region.

Finally, for the United States both trade and financial exposures have a positive and
statistically impact on IFI disbursements for basically all five regions. This confirms the
view of the United States being the only truly global source of influence in IFI lending.

The results of the final version of the model are reported in the last column of Table 4.
Summing up, three facts stand out. First, the United States exerts a dominant role in
affecting the lending operations of the IFI’s. Financial exposure of US banks is associated
with greater IFI lending across all regions. Similarly, the impact of US trade interests is
strong and significant in all the five regions considered here. Second, Europe also, and
to a much lesser extent Japan, carries some influence within the IFIs. Japan’s role seems
to be exclusively motivated by financial considerations and confined to its backyard,
Asia. The European Union casts a broader net of influence that includes developing
Europe when financial exposure is significant in size, and all the five regions when trade
considerations are allowed for. However, the quantitative significance of Europe’s
influence is substantially more limited than that of the United States, as demonstrated by

16



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