Clientelism as Compensation: How Clientelism facilitates Capital Account Liberalization in Latin America

Facilitator: Lou Vijayakar

The general embrace of liberal economic policies throughout the developing world has been noteworthy for its social and political implications. The purpose of this paper is to explore the political dynamics of capital account liberalization (i.e. the free movement of capital across countries) in Latin America since the 1980s. In particular, I study how policymakers were able to enact economic policies like capital openness that imposed severe costs on certain domestic actors. I theorized that the ability of policymakers to compensate those actors hurt by capital openness could help explain the lack of resistance to such policies. The results of a case study of Argentina’s capital account liberalization in the early 1990s and an empirical analysis of 19 Latin American countries give support to this hypothesis. Hence, the analysis conducted in this study has given strong reason to pursue additional research on the relationship between informal interactions among policymakers and citizens (like compensation) and the likelihood of economic reforms throughout the developing world.