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Liberalization, Growth, and Financial Crises: Lessons from Mexico and the Developing World

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By now there is widespread agreement that trade liberalization
enhances growth. No such agreement exists, however, on the growthenhancing
effects of financial liberalization, in large part because it is
associated with risky capital flows, lending booms, and crises. The Mexican
experience is often considered a prime example of what can go wrong
with liberalization. Mexico liberalized its trade and finance and entered
the North American Free Trade Agreement (NAFTA), yet despite these
reforms, Mexico’s growth performance has been unremarkable in comparison
with that of its peers. A particularly worrisome development is
that, since 2000, there has been a slowdown in Mexico’s exports.


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