In some of the more advanced developing countries, such as Korea, Taiwan, and Japan, external competitive pressures have operated to liberalize financial systems, but gradually. In most other developing and socialist countries, it is difficult to disentangle the politics of finance from the broader, more contentious politics of stabilization, structural adjustment, and transition to the market. The differences between the politics of reform in the advanced industrial states and in the developing world are therefore striking. The process in the advanced industrial state is accelerated by strong, concentrated interests that have supported and even led liberalization efforts. But the process of reform in the developing world has often been launched under duress, and support for liberalization and deregulation consequently has been more fragile and subject to reversal.
Rapid reform is unlikely to stick if opposing interests are strong.
In Haggard s view, sequencing and gradualism can be useful in building support step by step for the transition to a new policy equilibrium. Although some small countries have fully liberalized financial sectors or are in a liberalized currency bloc, for most financial sector development and the merits of alternative reform strategies are highly relevant. Fry s findings suggest that small economies may gain more from integration with the rest of the world than large economies. Reducing barriers, such as capital account constraints, can stimulate growth more in the small economies than in the large ones. The capital account in many small developing countries should thus be liberalized as soon as possible once fiscal discipline has been established.