The forgotten dimension of financial globalization: How incoming capital flow composition affects state-business power resource balance and capital control policy in Mexico, Zaire, Argentina and the Philippines from 1975-1995

Does the state always lose power to market forces in the process of financial globalization? Does globalization affect all states in the same way? What exactly is globalization and what are the causal processes associated with it? This dissertation argues that (1) the state does not always lose power to the market under conditions of globalization, (2) globalization affects states differently, and (3) in order to know how a particular state will be affected by globalization one should not look at the volume of the state's international financial transactions (a popular indicator used in the literature), but rather at the composition of capital flows coming into the state.; This dissertation presents a series of hypotheses outlining how incoming capital flow composition affects state-business power resource balance, and then shows how these power resources affect foreign economic policy in the issue area of capital controls. I argue that as the capital flowing into a country becomes more liquid and goes increasingly to private sector recipients, business gains power resources over the state and is more likely to have its preferences reflected in capital control policy. On the other hand, if incoming capital is of low liquidity and goes primarily to the state, the state's preferences will prevail in capital control policy. It is under this circumstance that the state can maintain power in the face of globalization.; These deductive hypotheses are applied to two detailed case studies of Mexico, over the periods of 1975–1983 and 1984–1995, as well as to the cases of Zaire, Argentina and the Philippines over the 1975–1995 period in a comparative case study chapter. The hypotheses help solve a puzzle in Mexican foreign economic policy: why did the state impose comprehensive capital controls in response to the 1982 debt crisis, but maintain openness in response to the 1994 peso crisis? I argue that the shift in the composition of incoming capital is responsible for the different responses.