The world economy is undergoing a period of extraordinary trade, productive and financial integration within the context of rapid policy reform and liberalization, both within countries as well as within global and regional associations. Within this rapidly changing environment, how a country manages the timing and scope of domestic policy reforms and international negotiations will have profound implications for its position in the emerging new world economic order. Yet in many cases, sector specific reforms or multilateral negotiations are evaluated from the perspective of the political economy of that specific sector, instead of the national economy-wide and long-term global competitive implications that this sector specific agenda many have.

This paper examines the case of two of the most important emerging countries in the world economy and the choices they will face in the context of post-GATT policy reforms and negotiations. The potential impacts of financial sector liberalization for these countries is of particular interest since reform of this sector is emerging as one of the most important issues for negotiations within the new World Trade Organization (WTO) framework. It is also a case where the political economy of specific concerns within national financial sectors may be at odds with the broader economy wide implications and opportunities of financial sector reforms. In other words, reform measures targeting financial sectors are likely to decrease the profitability of local financial firms, at least in the short run, while reducing costs and improving efficiency in the other productive and service sectors. This paper seeks to make available more comprehensive methodologies for evaluating the economy-wide impacts of specific financial sectors liberalizations which might be able to better inform the choices available to policy makers and other economic actors.