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The Case of the Missing Market: The Bond Market and Why It Matters for Financial Development

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Author Info
Richard J. Herring
Nathporn Chatusripitak
Abstract

Over the last decade interest in the role of finance in economic growth has revived. Building from the pioneering work of Goldsmith (1965) and the insights of Shaw (1973) and McKinnon (1973), the more recent work examines the role of financial institutions and financial markets in corporate governance and the consequent implications for economic growth and development. Levine (1997) and Stulz (2000) have provided excellent reviews of this literature and Allen and Gale (2000) have extended it by developing a framework for comparing bank-based financial systems with market-based financial systems. Although the literature addresses "capital markets," on closer inspection the main focus is really equity markets. Bond markets are almost completely overlooked.

Although the omission of the bond market is not defended in the literature, one could argue that it does little violence to reality. As Table 1 shows, in most emerging economies in Asia, bond markets are very small relative to the banking system or equity markets. Moreover, the most striking theoretical results flow from a comparison of debt contracts with equity contracts and at a high level of abstraction bank lending can proxy for all debt. In any event, data are much more readily available for equity markets and the banking system than for bond markets, even in the United States.

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Paper provided by Wharton School Center for Financial Institutions, University of Pennsylvania in its series Center for Financial Institutions Working Papers with number 01-08.

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Date of creation: May 2000
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Handle: RePEc:wop:pennin:01-08

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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.:
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  2. Nils H. Hakansson, 1999. "The Role of a Corporate Bond Market in an Economy - and in Avoiding Crises," Research Program in Finance Working Papers RPF-287, University of California at Berkeley. [Downloadable!]
  3. Black, Fischer, 1976. "The pricing of commodity contracts," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 167-179. [Downloadable!] (restricted)
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  6. Claessens, Constantijn A. & Djankov, Simeon & Lang, Larry H. P., 1999. "Who controls East Asian corporations ?," Policy Research Working Paper Series 2054, The World Bank. [Downloadable!]
  7. Caprio Jr., Gerard & Demirguc-Kunt, Asli, 1997. "The role of long term finance : theory and evidence," Policy Research Working Paper Series 1746, The World Bank. [Downloadable!]
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  8. Kane, Edward J., 2000. "Designing financial safety nets to fit country circumstances," Policy Research Working Paper Series 2453, The World Bank. [Downloadable!]
  9. Herring, Richard J, 1989. "The Economics of Workout Lending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(1), pages 1-15, February. [Downloadable!] (restricted)
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  12. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December. [Downloadable!] (restricted)
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  13. Hart, Oliver & Moore, John, 1995. "Debt and Seniority: An Analysis of the Role of Hard Claims in Constraining Management," American Economic Review, American Economic Association, vol. 85(3), pages 567-85, June. [Downloadable!] (restricted)
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  14. Claessens, Stijn & Djankov, Simeon & Joseph P. H. Fan & Lang, Larry H. P., 1999. "Corporate diversification in East Asia : the role of ultimate ownership and group affiliation," Policy Research Working Paper Series 2089, The World Bank. [Downloadable!]
  15. Alba, Pedro & Claessens, Stijn & Djankov, Simeon, 1998. "Thailand's corporate financing and governance structures," Policy Research Working Paper Series 2003, The World Bank. [Downloadable!]
  16. Nils Hakansson, 1999. "The Role of a Corporate Bond Market in an Economy -- and in Avoiding Crises," Research Program in Finance, Working Paper Series 1008, Research Program in Finance, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
  17. David E. Weinstein & Yishay Yafeh, 1998. "On the Costs of a Bank-Centered Financial System: Evidence from the Changing Main Bank Relations in Japan," Journal of Finance, American Finance Association, vol. 53(2), pages 635-672, 04. [Downloadable!] (restricted)
  18. Edward Kane, 2000. "Architecture of Supra-Governmental International Financial Regulation," Journal of Financial Services Research, Springer, vol. 18(2), pages 301-318, December. [Downloadable!] (restricted)
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(explanations, 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.)

  1. Bonin, John & Wachtel, Paul, 2002. "Financial sector development in transition economies: Lessons from the first decade," BOFIT Discussion Papers 9/2002, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
  2. Barry Eichengreen & Ricardo Hausmann & Ugo Panizza, 2003. "Currency Mismatches, Debt Intolerance and Original Sin: Why They Are Not the Same and Why it Matters," NBER Working Papers 10036, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Barry Eichengreen & Pipat Luengnaruemitchai, 2004. "Why Dones't Asia have the biger bond markets," Working Papers 242004, Hong Kong Institute for Monetary Research. [Downloadable!]
  4. Michael Kumhof & Evan Tanner, 2005. "Government Debt: A Key Role in Financial Intermediation," IMF Working Papers 05/57, International Monetary Fund. [Downloadable!]
  5. Lamberte, Mario B., 2002. "ASEAN's Fledgling Debt Securities Markets: More tasks Ahead," Discussion Papers DP 2002-05, Philippine Institute for Development Studies. [Downloadable!]
  6. Menzie Chinn, 2002. "The Compatibility of Capital Controls and Financial Development: A Selective Survey and Empirical Evidence," Finance Working Papers 385, East Asian Bureau of Economic Research. [Downloadable!]
  7. Yong Sarah Zhou, 2008. "Capital Flows and Economic Fluctuations: The Role of Commercials Banks in Transmitting Shocks," IMF Working Papers 08/12, International Monetary Fund. [Downloadable!]
  8. Jennifer A. Elliott & Cem Karacadag & Vasudevan Sundararajan, 2003. "Managing Risks in Financial Market Development: The Role of Sequencing," IMF Working Papers 03/116, International Monetary Fund. [Downloadable!]
  9. Barry Eichengreen & Pipat Luengnaruemitchai, 2004. "Why Doesn't Asia Have Bigger Bond Markets?," NBER Working Papers 10576, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  10. Jorge Desormeaux, 2002. "Capital Markets in Chile: From Financial Repression to Financial Deepening," Economic Policy Papers Central Bank of Chile 04, Central Bank of Chile. [Downloadable!]
  11. Claessens, Stijn & Klingebiel, Daniela & Schmukler, Sergio, 2003. "Government Bonds in Domestic and Foreign Currency: The Role of Macroeconomic and Institutional Factors," CEPR Discussion Papers 3789, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  12. Menzie D. Chinn & Hiro Ito, 2002. "Capital Account Liberalization, Institutions and Financial Development: Cross Country Evidence," NBER Working Papers 8967, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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