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We focus on explaining changes within three foreign
economic policy areas, each of which is primarily monetary
or financial in nature but has a profound impact
on the real economy. The first is liberalization of the
current account, which includes foreign debt repayment
and payment for goods, services, and invisibles
(see Simmons 2000). The second is liberalization of
the capital account, or the removal of taxes, quotas,
or other rules that discourage the free movement of
investment funds into and out of a country (Quinn and
Inclan 1997). The third policy is the unification of the
exchange rate, or eliminating multiple or tiered systems
that can be used to discriminate against particular kinds
of transactions or particular trading partners (Reinhart
and Rogoff 2002). Together, these three policy areas
constitute the principal aspects of international monetary
and financial liberalization over the past three
decades.We argue that these choices are influenced by
the choices of other governments as much as they are
by exogenously given domestic institutions or preferences
that can be traced back to domestic political or
economic structures. Our task is to demonstrate how
and why these policy choices diffuse internationally.
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