Flashback: Financial Liberalization in Mexico and South Korea

Abstract

This paper investigates financial liberalization in Mexico and South Korea from a comparative international political economy perspective. Though the two countries have a different political economy background, their experiences with financial repression and liberalization were similar, as was the manner in which they handled the subsequent huge inflow of capital. During the process of financial liberalization, both governments had their policy autonomy undermined by strong domestic interest groups as well as by influential international actors. Similar situational effects also prevailed during these two countries’ financial crises: both experienced surges of international financial capital, had presidential elections during the crisis, and joined the OECD around that time. This paper sheds light on how the two countries experienced macroeconomic imbalances and financial crisis as a result of financial liberalization. The experience suggests meaningful lessons for other developing countries regarding the policy dilemmas that can arise from financial liberalization.