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Market liberalization has been carried out by many developing countries in the hopes of stimulating trade, investment and technology transfer. In order to analyze the impacts of liberalization on a specific industry sector, this paper compares the experiences of Brazil and Mexico in liberalizing the computer industry in the 1990s. The authors conclude that liberalization leads to lower prices and more rapid diffusion of computer use throughout the economy, but at a cost to domestic computer firms who were harmed by foreign competition. Both countries saw an increase in computer production, but Mexico's production was mainly for export to the United States, while Brazil was producing for the domestic market. The differences between outcomes in the two countries have been determined more by environmental factors than by the nature and pace of liberalization. © 2001 Elsevier Science Ltd.