The domestic politics of financial internationalization in the developing world

This paper examines the domestic politics of financial internationalization. Financial internationalization has two components, the liberalization of <italic>cross-border capital flows</italic> and the liberalization of <italic>foreign ownership restrictions</italic>, yet most research to date has concentrated exclusively on the former. Building on existing theoretical work, this paper argues that in the developing world, domestic finance favors the joint abolition of restrictions on the inflow of foreign capital alongside continued restrictions on the ability of foreigners to own and operate domestic financial institutions. I test the argument on a unique dataset of foreign entry restrictions in developing economies and by examining interest group pressures for financial internationalization in Indonesia and Mexico. The findings complement and extend recent work on financial internationalization in the developing world and suggest further areas for research in the role of domestic interest group preferences for global economic integration.