States, Banks, and Markets: Mexico's Path to Financial Liberalization in Comparative Perspective

States, Banks, and Markets: Mexico's Path to Financial Liberalization in Comparative Perspective

States, Banks, and Markets: Mexico's Path to Financial Liberalization in Comparative Perspective

States, Banks, and Markets: Mexico's Path to Financial Liberalization in Comparative Perspective

Excerpt

Through a comparative lens, this book explains why the transition to financial liberalization beginning in the 1980s was accompanied by economic crisis and declining growth rates in countries such as Mexico, whereas the same policy was associated with high growth rates and a relatively more equitable distribution of income in other countries such as South Korea and Hong Kong. It argues that the financial liberalization process can and should be understood as a strategic interaction between two sets of actors: private financiers and state officials. Attention to these actors' interaction helps explain disparate results from seemingly similar policies within different developing economies.

Although there is strong evidence that a well-functioning financial system can promote long-term economic growth, there has been no consensus among political scientists or economists as to how financial liberalization affects economic performance during the transition. Because the timing and nature of financial liberalization differs considerably from case to case, it is often difficult to determine whether poor economic performance resulted from the fact that the country liberalized at all or whether it resulted from a sub-optimal reform path. This book will argue, in fact, that the timing and duration of the liberalization process has frequently been a more important element differentiating the performance of newly industrializing countries than financial liberalization itself.

The observation that most developing country financial systems have followed similar developmental patterns has provided the motivation for the comparative analysis presented here. As countries become richer, the role of the state in allocating credit becomes less important and private banks become more important. Later in the development process, stock markets and other non-bank financial institutions flourish in relation to private banks. This later phase, however, did not occur in several advanced industrial countries, notably Germany, France, and Japan, where their respective financial systems appear to have remained bank-led. Yet these developed country examples make even more clear the development path that newly industrializing nations share in common; that because of market size and external pressure, first state-led finance and . . .

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