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Stock market development and financial intermediary growth : a research agenda

  • Demirguc-Kunt, Asli
  • Levine, Ross

Empirical evidence suggests that financial services - such as mobilizing savings, managing risk, allocating resources, and facilitating transactions - influence and are influenced by economic development. And financial crises - widespread bank failures, the collapse of stock markets - can impede and even reverse economic advances. With this in mind, the World Bank made special efforts in the 1980s to help countries improve their financial systems and cope with financial crises that threatened economic prosperity. Bank programs focused on core financial themes (loosening up interest rates, reducing government involvement in credit allocation, rationalizing taxes on financial intermediaries) and on managing bank failures, rehabilitating insolvent banks, and training bank managers and supervisors. Recently, Bank programs have stressed the development of capital markets, especially stock markets, but little research has been done in measuring the level ofstock market development or understanding the relationship between the development of stock markets and the functioning of financial intermediaries. The authors did some preliminary research on these issues and suggest further topics for research. They propose different empirical indicators of stock market development. They also suggest how to use these indicators to help evaluate stock market development policies. They find that the relationship between the development of stock markets and the functioning of financial intermediaries may be complementary.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1159.

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Date of creation: 31 Jul 1993
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Handle: RePEc:wbk:wbrwps:1159
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  1. Harris, Milton & Raviv, Artur, 1991. " The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
  2. Rudiger Dornbusch & Alejandro Reynoso, 1989. "Financial Factors in Economic Development," NBER Working Papers 2889, National Bureau of Economic Research, Inc.
  3. King, Robert G & Levine, Ross, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 717-37, August.
  4. Gultekin, Mustafa N & Gultekin, N Bulent & Penati, Alessandro, 1989. " Capital Controls and International Capital Market Segmentation: The Evidence from the Japanese and American Stock Markets," Journal of Finance, American Finance Association, vol. 44(4), pages 849-69, September.
  5. Montiel, Peter J., 1993. "Capital mobility in developing countries : some measurement issues and empirical estimates," Policy Research Working Paper Series 1103, The World Bank.
  6. Dailami, Mansoor & Atkin, Michael, 1990. "Stock markets in developing countries : key issues and a research agenda," Policy Research Working Paper Series 515, The World Bank.
  7. Levine, Ross, 1991. " Stock Markets, Growth, and Tax Policy," Journal of Finance, American Finance Association, vol. 46(4), pages 1445-65, September.
  8. Demirguc-Kunt, Asli, 1992. "Developing country capital structures and emerging stock markets," Policy Research Working Paper Series 933, The World Bank.
  9. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December.
  10. Singh, A. & Hamid, J., 1992. "Corporate Financial Structure in Developing Countries," Papers 1, World Bank - International Finance Corporation.
  11. Roll, Richard & Ross, Stephen A, 1980. " An Empirical Investigation of the Arbitrage Pricing Theory," Journal of Finance, American Finance Association, vol. 35(5), pages 1073-1103, December.
  12. Shanken, Jay, 1992. "On the Estimation of Beta-Pricing Models," Review of Financial Studies, Society for Financial Studies, vol. 5(1), pages 1-33.
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