ABSTRACT
Sectoral restrictions have been more pervasive in financial service sectors than in the manufacturing sector. Foreign control of financial services has been seen as having large negative externalities in terms of loss of control over credit allocation and creation. Finance and the control of capital flows have been seen as too important to the political economy of a country to allow investment by foreign entities. Governments have used the banking system to subsidize certain sectors and groups, and they have allowed financial institutions to recover these subsidies by paying low interest rates on deposits and/or by charging other borrowers higher interest rates. Through 1994, in the Philippines, foreign equity ownership in the financial sectors was limited to between 30 per cent and 49 per cent. In Venezuela, insurance and banking faced new restrictions in 1994, although these were not aimed at foreign direct investment.
