(Page 2 of 29) - Neoliberal Norms and Capital Account Liberalization in Emerging Markets: The Role of Domestic-Level Knowledge-Based Experts authored by Chwieroth, Jeffrey.

A number of emerging market economies liberalized controls over international capital

movements in the late 1980s through the Asian financial crisis. Why? A survey of the literature
on capital account liberalization suggests a wide variety of explanations but with little consensus.
Many of these studies argue that systemic forces, such as marketplace innovation and advances
in communications and information technologies, act as a constraint on policy-making obliging
states to liberalize (Bryant 1987; Goodman and Pauly 1993; Andrews 1994; Garrett 2000; Baines
2002). Other studies emphasize the importance of domestic political and institutional
configurations (Pauly 1988; Frieden 1991; Sobel 1994; Haggard and Maxfield 1996; Quinn
2000; Brune et al. 2001; Quinn and Toyoda 2002; Kastner and Rector 2003; Li and Smith 2002a,
2003). Both approaches, however, while offering useful insights, dismiss or marginalize the
impact of social factors such as norms and ideas, which might be also be critical for
understanding this outcome. Referring to the role of norms and ideas, Eichengreen (2002:351)
observes “there may have been a tendency [in the literature on capital account liberalization] to
focus on factors that are readily measured and quantified to the neglect of those that are more
difficult to capture.”

Resisting that tendency, this paper, by contrast, focuses specifically on the role of norms

and ideas as developed in constructivist approach to international relations. Largely absent until
now from the study of international money and finance, constructivism offers a number of
propositions concerning how norms and ideas influence state behavior (Katzenstein 1996; Hopf
1998; Ruggie 1998; Finnemore and Sikkink 2001; Adler 2002).

In this paper I apply these

constructivist insights to the study of capital account liberalization. Relying on a set of
arguments put forth by Odell, Haas, Adler, and Ruggie (Odell 1982; Haas 1992a; Adler and Haas
1992; Ruggie 1998), I argue capital account policy decisions in emerging markets are shaped in
part by the coherence and content of the norms and ideas that key decision-makers share.
Emphasis is placed on the ability of a “critical mass” of knowledge-based experts to acquire
power in domestic-level decision-making positions and promote norms and ideas proscribing
capital controls. Time-series cross-sectional data on 37 emerging markets from 1970 – 1995 are
employed to test this proposition. Using these data, it is empirically shown that these domestic-
level knowledge-based experts significantly influenced the decision to liberalize in emerging
markets.

This paper contributes to two distinct areas of scholarship – the literature on capital

account liberalization and the constructivist approach to international relations. With respect to
the literature on capital account liberalization, this paper makes several contributions. First,
although the apparent importance of norms and ideas is cited in a number of accounts of capital
account liberalization, their role remains to be systematically explored. Existing accounts stress
the role of “widely shared ideological commitments” and “mindsets” (Andrews 1994:200-201),
“embedded financial orthodoxy” (Cerny 1993), neoliberal ideas (Helleiner 1994), and the
possibility that “market-oriented norms diffused around the world” (Brune et al. 2001:18).
These accounts, however, tell us little about where these norms and ideas came from and how
they diffused – key theoretical questions in the study of the role of norms and ideas (Checkel
1998, 1999; Berman 2001). As Cohen (2002:433) notes, most studies of the role of norms and
ideas in international finance “tend to be impressionistic at best, rarely backed by systematic
testing or argument, and rest squarely in the neo-utilitarian [rationalist] tradition. Even less has

For notable exceptions to this trend by constructivists, see McNamara (1998, 2002) and Chwieroth (2003a, 2003b,

2003c).