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The International Monetary Fund and the World Bank, frequently, and often repeatedly, extend loans to developing nations. These loans have been blamed for generating adverse economic outcomes. The growth impact of Fund and Bank loan programs is assessed using an empirical growth model that controls for other determinants of growth. A unique feature of this study is the use of the value of loans rather than the number of programs. The estimates indicate that Bank lending stimulates growth in some cases, primarily by increasing public investment. Fund lending is either neutral or detrimental to growth. The channel for this effect is a negative impact of Fund lending on public as well as private investment. Key words--development aid, empirical growth model, international lending, International Monetary Fund, World Bank

This paper presents evidence that spillovers through bank lending, as opposed to trade linkages and country characteristics, can help explain contagion. We construct a measure of competition for bank funds and find evidence in favor of a common lender effect in the Mexican, Thai, and Russian crises, after controlling for the degree of trade competition and macroeconomic fundamentals. The results are quite robust to the definition of the finance indicator. In the case of the Asian crisis, results are not always robust to the inclusion of trade competition, reflecting the high correlation between competition for funds and trade. Keywords: Contagion; Currency crisis; Financial spillovers; Trade spillovers; Common bank lender JEL classification: F30; F32; F34