ABSTRACT
This chapter compares two large developing economies, China and Mexico, during the period preceding the onset of a financial crisis. It includes an analysis of capital flow and its relationship to Gross Domestic Product (GDP) growth rates and external factors and provides the composition of capital inflow. The correspondence between the average GDP growth rate and net capital inflow is of course non-causal, since both growth and capital flows depend largely upon similar aspects of the policy and non-policy economic environment. The chapter also compares macroeconomic analyses of capital flow and presents the estimated capital flight and the related causes and consequences in the economies of China and Mexico. It focuses on some lessons and makes suggestions for China and its ongoing capital market liberalization. Mexico suffered political instability in the years immediately preceding the peso crisis, whereas, in contrast, China maintained a stable political situation preceding and throughout the Asian financial crisis.
