Hostname: page-component-848d4c4894-m9kch Total loading time: 0 Render date: 2024-05-24T08:18:34.028Z Has data issue: false hasContentIssue false

The Globalization of Liberalization: Policy Diffusion in the International Political Economy

Published online by Cambridge University Press:  27 February 2004

Harvard University
University of Illinois


One of the most important developments over the past three decades has been the spread of liberal economic ideas and policies throughout the world. These policies have affected the lives of millions of people, yet our most sophisticated political economy models do not adequately capture influences on these policy choices. Evidence suggests that the adoption of liberal economic practices is highly clustered both temporally and spatially. We hypothesize that this clustering might be due to processes of policy diffusion. We think of diffusion as resulting from one of two broad sets of forces: one in which mounting adoptions of a policy alter the benefits of adopting for others and another in which adoptions provide policy relevant information about the benefits of adopting. We develop arguments within these broad classes of mechanisms, construct appropriate measures of the relevant concepts, and test their effects on liberalization and restriction of the current account, the capital account, and the exchange rate regime. Our findings suggest that domestic models of foreign economic policy making are insufficient. The evidence shows that policy transitions are influenced by international economic competition as well as the policies of a country's sociocultural peers. We interpret the latter influence as a form of channeled learning reflecting governments' search for appropriate models for economic policy.

© 2004 by the American Political Science Association

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)


Alesina Alberto F., Grilli Vittorio, and Milesi-Ferretti Gian Maria 1994The Political Economy of Capital Controls.” In Capital Mobility: The Impact on Consumption, Investment, and Growth, ed. Leonardo Leiderman and Assaf Razin. Cambridge: Cambridge University Press.
Allison Paul D. 1984 Event History Analysis and Regression for Longitudinal Event Data. Beverly Hills, CA: Sage.
Amin Galal A. 1981Some Economic and Cultural Aspects of Economic Liberalization in Egypt.” Social Problems 30 (2): 43041.Google Scholar
Anselin Luc. 1988 Spatial Econometrics: Methods and Models. Dordrecht, The Netherlands: Kluwer Academic.
Axelrod Robert. 1997The Dissemination of Culture—A Model with Local Convergence and Global Polarization.” Journal of Conflict Resolution 41 (2): 20326.Google Scholar
Bartolini Leonardo, and Drazen Allan 1997aCapital-Account Liberalization as a Signal.” American Economic Review 87 (1): 13854.Google Scholar
Bartolini Leonardo, and Drazen Allan 1997bWhen Liberal Policies Reflect External Shocks, What Do We Learn?” Journal of International Economics 42 (3–4): 24973.Google Scholar
Beng-Huat Chua. 1999Asian-Values. Discourse and the Resurrection of the Social.” Positions 48 (4): 57392.Google Scholar
Bennett Colin. 1991How States Utilize Foreign Evidence.” Journal of Public Policy 11 (1): 3154.Google Scholar
Blalock Hubert M. 1984Contextual Effects Models: Theoretical and Methodological Issues.” Annual Review of Sociology 10: 35372.Google Scholar
Brady Henry E., and Sniderman Paul M. 1985Attitude Attribution: A Group Basis for Political Reasoning.” American Political Science Review 79: 106178.Google Scholar
Cantor Richard, and Packer Frank 1996Determinants and Impact of Sovereign Credit Ratings.” Economic Policy Review 2 (2): 3753.Google Scholar
Cargill Thomas F., and Parker Elliott 2001Financial Liberalization in China: Limitations and Lessons of the Japanese Regime.” Journal of the Asia Pacific Economy 6 (1): 121.Google Scholar
Central Intelligence Agency. 1999 World Factbook.
Checkel Jeff. 1993Ideas, Institutions, and the Gorbachev Foreign Policy Revolution.” World Politics 45: 271300.Google Scholar
Chun Allen. 2000Democracy as Hegemony, Globalization as Indigenization, or the ‘Culture’ in Taiwanese National Politics.” Journal of Asian and African Studies 35 (1): 727.Google Scholar
Crook Clive. 2003A Cruel Sea of Capital.” Economist, 1 May.
Coleman James S. 1960The Adolescent Subculture and Academic Achievement.” American Journal of Sociology 65 (4): 33747.Google Scholar
Collier David, and Messick R. E. 1975Functional Requisites versus Diffusion: Testing Alternative Explanations of Social Security Adoption.” American Political Science Review 69: 12991315.Google Scholar
Cooper Richard N. 1968 The Economics of Interdependence: Economic Policy in the Atlantic Community. New York: McGraw–Hill for the Council on Foreign Relations.
Cukierman Alex. 1992 Central Bank Strategy, Credibility, and Independence: Theory and Evidence. Cambridge, MA: MIT Press.
Davis Gerald F., and Greve. Henrich R. 1997Corporate Elite Networks and Governance Changes in the 1980s.” American Journal of Sociology 103: 137.Google Scholar
Deutsch Karl W. 1953 Nationalism and Social Communication: An Inquiry into the Foundations of Nationality. New York: Wiley.
Dobson Wendy, and Hufbauer Gary Clyde 2001 World Capital Markets: Challenge to the G-10. Washington, DC: Institute for International Economics.
Edwards A. C., and Edwards Sebastian 1992Markets and Democracy—Lessons from Chile.” World Economy 15 (2): 20319.Google Scholar
Eichengreen Barry, Rose Andrew, and Wyplosz Charles 1995Exchange Market Mayhem: The Antecedents and Aftermath of Speculative Attacks.” Economic Policy 21: 4561.Google Scholar
Elkins Zachary. 2000Gradations of Democracy? Empirical Tests of Alternative Conceptualizations.” American Journal of Political Science 44 (2): 293300.Google Scholar
Elkins Zachary, Guzman Andrew, and Simmons. Beth A. 2003The Diffusion of Bilateral Investment Treaties: An Empirical Analysis.” Presented at the Conference on International Diffusion of Political and Economic Liberalization, Weatherhead Center for International Affairs, Harvard University, October 3–4, 2003. Available at
Encarnation Dennis J., and Mason. Mark 1990Neither MITI nor America: The Political Economy of Capital Liberalization in Japan.” International Organization 44: 2554.Google Scholar
Epstein Gerald A., and Schor Juliet 1992Structural Determinants and Economic Effects of Capital Controls in OECD Countries.” In Financial Openness and National Autonomy: Opportunities and Constraints, ed. Tariq Banuri and Juliet Schor. Oxford: Clarendon Press.
Europa. 1999 Europa World Year Book 1999. London: Europa.
Finger J. M., and Kreinin M. E. 1979A Measure of ‘Export Similarity’ and Its Possible Uses.” Economic Journal 89: 90512.Google Scholar
Finnemore Martha. 1996 National Interests in International Society. Ithaca, NY: Cornell University Press.
Frieden Jeffrey A. 1991Invested Interests: The Politics of National Economic Policies in a World of Global Finance.” International Organization 45 (4): 42551.Google Scholar
Garrett Geoffrey, Guisinger Alexandra, and Sorens Jason P. 2000The Political Economy of Capital Account Liberalization.” Unpublished manuscript.
Ghosh A. R., and Wolf H. C. 1996On the Mark(s): Optimum Currency Areas in Germany.” Economic Modelling 13 (4): 56173.Google Scholar
Gleditsch Kristian S., and Ward Michael D. 2000War and Peace in Space and Time: The Role of Democratization.” International Studies Quarterly 44 (1): 129.Google Scholar
Goff Patricia M. 2000Invisible Borders: Economic Liberalization and National Identity.” International Studies Quarterly 44 (4): 53362.Google Scholar
Goodman John, and Pauly Louis 1993The Obsolescence of Capital Controls? Economic Management in an Age of Global Markets.” World Politics 46: 5082.Google Scholar
Gore Charles. 2000The Rise and Fall of the Washington Consensus as a Paradigm for Developing Countries.” World Development 28 (5): 789804.Google Scholar
Granato Jim, Inglehart Ronald, and Leblang David 1996The Effect of Cultural Values on Economic Development: Theory, Hypotheses, and Some Empirical Tests.” American Journal of Political Science 40 (3): 60731.Google Scholar
Granovetter Mark. 1978Threshold Models of Collective Behavior.” American Journal of Sociology 83 (6): 142043.Google Scholar
Gray Virginia. 1973Innovation in the States: A Diffusion Study.” American Political Science Review 67: 117485.Google Scholar
Gruber Lloyd. 2000 Ruling the World: Power Politics and the Rise of Supranational Institutions. Princeton, NJ: Princeton University Press.
Haas Ernst B. 1959 The Future of West European Political and Economic Unity. Santa Barbara, CA: Technical Military Planning Operation, General Electric Company.
Haggard Stephan, and Maxfield Sylvia 1996The Political Economy of Financial Internationalization in the Developing World.” International Organization 50 (1): 3568.Google Scholar
Hague Nadeem, Mathieson Donald, and Nelson Mark 1997Rating the Raters of Country Creditworthiness.” Journal of Finance and Development 10.Google Scholar
Hamada Koichi. 1985 The Political Economy of International Monetary Interdependence. Cambridge, MA: MIT Press.
Helleiner Eric. 2002Economic Nationalism as a Challenge to Economic Liberalism? Lessons from the 19th Century.” International Studies Quarterly 46 (3): 30729.Google Scholar
Huntington Samuel P. 1991 The Third Wave: Democratization in the Late Twentieth Century. Norman: University of Oklahoma Press.
Iida Keisuke. 1999 International Monetary Cooperation among the United States, Japan, and Germany. Boston: Kluwer Academic.
Jacoby Wade. 2000 Imitation and Politics: Redesigning Modern Germany. Ithaca, NY: Cornell University Press.
Johnston R. Barry, and Tamirisa Natalia T. 1998Why Do Countries Use Capital Controls?” IMF Working Papers WP/98/181. Washington, DC: International Monetary Fund.
Kahneman Daniel, Slovic Paul, and Tversky Amos 1982 Judgment Under Uncertainty: Heuristics and Biases. Cambridge: Cambridge University Press.
Kaplinsky Raphael. 2001Globalisation and Economic Security.” IDS Bulletin 49 (6): 1324.Google Scholar
King Gary. 1989Event Count Models for International Relations: Generalizations and Applications.” International Studies Quarterly 33: 12347.Google Scholar
Krasner Stephen D. 1985 Structural Conflict: The Third World Against Global Liberalism.Berkeley: University of California Press.
La Porta Rafael, Andrei Shleifer Florencio Lopez-De-Silanes, and Robert W. Vishny. 1997 Legal determinants of external finance. Journal of Finance 52 (3): 113150.Google Scholar
Leblang David A. 1997Domestic and Systemic Determinants of Capital Controls.” International Studies Quarterly 41: 43554.Google Scholar
Leblang David A. 2003Is Democracy Incompatiable with International Economic Stability?” Manuscript. Department of Political Science, University of Colorado, Boulder.
Lupia Arthur, and McCubbins Mathew 1998 The Democratic Dilemma: Can Citizens Learn What They Need to Know? Cambridge: Cambridge University Press.
Majone Giandomenico. 1989 Evidence, Argument, and Persuasion in the Policy Process. New Haven, CT: Yale University Press.
Marsden Peter, and Friedkin Noah 1993Network Studies of Social Influence.” Sociological Methods and Research 22: 12751.Google Scholar
Maxfield Sylvia. 1997 Gatekeepers of Growth: The International Political Economy of Central Banking in Developing Countries. Princeton, NJ: Princeton University Press.
McNamara Kathleen R. 1998 The Currency of Ideas: Monetary Politics in the European Union.Ithaca, NY: Cornell University Press.
Meyer John W., and Rowan Brian 1977Institutionalized Organizations: Formal Structure as Myth and Ceremony.” American Journal of Sociology 83: 34063.Google Scholar
Mizruchi Mark S. 1989Similarity of Political Behavior among Large American Corporations.” American Journal of Sociology 95: 40125.Google Scholar
O'Laughlin John et al. 1998The Diffusion of Democracy, 1946–1994.” Annals of the Association of American Geographers 88 (1): 54574.Google Scholar
Powell Walter W., and DiMaggio Paul 1991 The New Institutionalism in Organizational Analysis. Chicago: University of Chicago Press.
Prasad Eswar, Shang-jin Wei Kenneth Rogoff, and Kose M. Ayhan 2002Effects of Financial Globalization on Developing Countries: Some Empirical Evidence.” International Monetary Fund (March 17, 2003).
Przeworski Adam. 1974Contextual Models of Political Behavior.” Political Methodology 1: 2761.Google Scholar
Quinn Dennis P. 1997The Correlates of Change in International Financial Regulation.” American Political Science Review 91: 53151.Google Scholar
Quinn Dennis P., and Inclan Carla 1997The Origins of Financial Openness: A Study of Current and Capital Account Liberalization.” American Journal of Political Science 41: 771813.Google Scholar
Reinhart Carmen M., and Rogoff Kenneth S. 2002The Modern History of Exchange Rate Arrangements: A Reinterpretation.” NBER Working Paper No. 8963.
Risse-Kappen Thomas. 1994Ideas Do Not Float Freely: Transnational Coalitions, Domestic Structures, and the End of the Cold War.” International Organization 48: 185214.Google Scholar
Rogers Everett M. 1995 The Diffusion of Innovations. 3rd ed. New York: Free Press.
Rogowski Ronald. 1989 Commerce and Coalitions: How Trade Affects Domestic Political Alignments. Princeton, NJ: Princeton University Press.
Rose Richard. 1993 Lesson Drawing in Public Policy. Chatham, NJ: Chatham House.
Rosenau James N. 1990 Turbulence in World Politics, a Theory of Change and Continuity. Princeton, NJ: Princeton University Press.
Ruggie John Gerhard. 1975International Responses to Technology: Concepts and Trends.” International Organization 29 (3): 55783.Google Scholar
Schelling Thomas C. 1978 Micromotives and Macrobehavior. New York: W. W. Norton.
Scott W. Richard, Meyer John W. et al., eds. 1994 Institutional Environment and Organizations: Structural Complexity and Individualism. Thousand Oaks CA: Sage.
Shalev Michael. 1997Zionism and Liberalization: Change and Continuity in Israel's Political Economy.” Humboldt Journal of Social Relations 47 (6): 21959.Google Scholar
Simmons Beth A. 1994 Who Adjusts? Domestic Sources of Foreign Economic Policy during the Interwar Years 1923–1939. Princeton, NJ: Princeton University Press.
Simmons Beth A. 2000International Law and State Behavior: Commitment and Compliance in International Monetary Affairs.” American Political Science Review 94: 81935.Google Scholar
Soto Marcelo. 2000Capital Flows and Growth in Developing Countries: Recent Empirical Evidence.” OECD Development Center, Technical Paper No. 160.
Starr Harvey. 1991Democratic Dominoes: Diffusion Approaches to the Spread of Democracy in the International System.” Journal of Conflict Resolution 35 (2): 35681.Google Scholar
Stockman Alan C., and Hernandez Alejandro 1988Exchange Controls, Capital Controls, and International Financial Markets.” American Economic Review 78 (3): 36274.Google Scholar
Strang D. 1991Adding Social Structure to Diffusion Models—An Event History Framework.” Sociological Methods and Research 19: 32453.Google Scholar
Tolbert Pamela, and Zucker Lynne 1983Institutional Sources of Change in the Formal Structure of Organizations: The Diffusion of Civil Service Reform, 1880–1935.” Administrative Science Quarterly 28 (1): 2239.Google Scholar
Wahba Jackline, and Mohieldin Mahmoud 1998Liberalizing Trade in Financial Services: The Uruguay Round and the Arab Countries.” World Development 26 (7): 133148.Google Scholar
Walker Jack L. 1969The Diffusion of Innovation among American States.” American Political Science Review 63: 88099.Google Scholar
Wasserman Stanley, and Faust Katherine 1994 Social Network Analysis: Methods and Applications. Cambridge: Cambridge University Press.
Westney D. Eleanor. 1987 Imitation and Innovation: The Transfer of Western Organizational Patterns to Meiji Japan.3 Cambridge, MA: Harvard University Press.
Williamson John. 1993Democracy and the Washington Consensus.” World Development 21 (8): 132936.Google Scholar