There is a large and growing literature that studies the effects of weak enforcement institutions on economic performance. This literature has focused almost exclusively on primary markets, in which assets are issued and traded to improve the allocation of investment and consumption. The general conclusion is that weak enforcement institutions impair the workings of these markets, giving rise to various inefficiencies. But weak enforcement institutions also create incentives to develop secondary markets, in which the assets issued in primary markets are retraded. This paper shows that trading in secondary markets counteracts the effects of weak enforcement institutions and, in the absence of further frictions, restores efficiency.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
13559.
Length: Date of creation: Oct 2007 Date of revision: Handle: RePEc:nbr:nberwo:13559
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Find related papers by JEL classification: F34 - International Economics - - International Finance - - - International Lending and Debt Problems F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Fernando Broner & Jaume Ventura, 2005.
"Globalization and Risk Sharing,"
Economics Working Papers
837, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 2009.
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