The implications of monetary, foreign exchange, and capital account policies for regional financial integration: Argentina, Brazil, and Mexico, 1990-2010

• Grant number: 11/17286-9
• Support Opportunities: Scholarships abroad - Research
• Effective date (Start): February 06, 2012
• Effective date (End): August 05, 2012
• Field of knowledge: Humanities - Political Science - International Politics
• Principal Investigator: Maria Antonieta Del Tedesco Lins
• Grantee: Maria Antonieta Del Tedesco Lins
• Host Investigator: Eric Hershberg
• Host Institution: Instituto de Relações Internacionais (IRI). Universidade de São Paulo (USP). São Paulo , SP, Brazil
• Research place: American University (AU), United States

Abstract

Economic policy cooperation among members of a regional integration bloc, up to monetary cooperation, has been discussed by policymakers in many emerging market countries as a possible path to strengthen their domestic economies and protect them from external financial contagion. However, prior regional financial market integration is often taken to be a prerequisite for more ambitious projects of multilateral economic policy cooperation. At the same time, private sector operations - related to trade, foreign direct investments or other monetary transfers among countries - can promote actual financial integration despite the existence or lack of formal intergovernmental agreements. This study examines the degree to which Latin America's three largest economies have become financially integrated within their respective regional blocs--NAFTA for Mexico, and MERCOSUR for Brazil and Argentina-and then seeks to account for the similarities and differences among them. The research project has two goals. First, it investigates economic policy choices over time in the three countries to consider the extent to which national financial policy choices (specifically choices of monetary, exchange rate, and external capital liberalization policies), as well as other national and international characteristics and conditions, have tended to promote or undercut regional and global financial integration. Second, it defines and measures the trajectories of both "regional financial integration" and "global financial integration" in the three countries over the past two decades. Preliminary research suggests several possible findings. During the 1990s, all three countries implemented a similar mix of market-oriented financial policies. Nonetheless, their subsequent experiences have differed dramatically. Due to the asymmetry of economic capabilities within NAFTA, Mexican policymakers' free of maneuver has been quite limited: despite considerable political ambivalence about this result, Mexico's regional financial market integration has deepened notably, yet Mexico's global financial integration remains limited. Argentina and Brazil both had left-leaning presidents in the 2000s, and broadly similar financial policies. Their quite different results-slow but steady global financial integration for Brazil, and uneven but fast regional financial integration for Argentina and less global integration since the 2002 crisis - may be explained not by a difference in national financial policy goals, but rather by differences in their domestic policymaking processes, as well as dissimilarities in the two countries' non-financial public policies. (AU)