Paths to Financial Policy Diffusion: Statist Legacies in Latin America's Globalization

Abstract The dominant approaches to the study of capital account liberalization have highlighted institutional barriers to reform and have also demonstrated an important role for interdependence, or the diffusion of a policy innovation from one country to another, as a causal force. Our approach contrasts with the institutional approach and seeks to clarify the political mechanisms of international policy diffusion. Specifically, we develop and test hypotheses that posit that structural economic legacies of the pre–reform era both condition the way in which international diffusion operates, and create the societal and economic interests that help produce varying capital account policy outcomes in the domestic political sphere. Analysis of capital account liberalization strategies in post–debt-crisis Latin America (1983–2007) reveals that capital account opening and the channels through which this innovation diffuses are conditioned by the legacy of a country's pre–debt crisis economic development model. Specifically, the degree to which advanced import-substituting industrialization was pursued prior to the reform era affects capital account policy by shaping both the relevant international peer groups through which policy models diffuse, and the sorts of domestic interests that are likely to influence the liberalization process. International diffusion also varies in its impact depending on domestic political and economic conditions.