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Opaque Markets and Rapid Growth: the Superiority of Bank-Centered Financial Systems for Developing Nations

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  • Rodney Wallace

Abstract

This paper analyzes the relationship between private investment incentives and the speed at which information regarding investment becomes public. In a developed country context, public information plays a limited role in creating investment incentives. However, in an environment of rapid economic development, firms only have a strong incentive to invest if information only becomes public after a long lag. Thus, the public disclosure that is an integral part of effective stock markets inhibits investment in developing countries despite not being problematic in developed nations. On the other hand, bank-centered financial systems limit the amount of public information and are therefore better suited to developing countries.

Suggested Citation

  • Rodney Wallace, 1999. "Opaque Markets and Rapid Growth: the Superiority of Bank-Centered Financial Systems for Developing Nations," William Davidson Institute Working Papers Series 222, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:1999-222
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    4. Lubyova, Martina & van Ours, Jan, 1997. "Unemployment dynamics and the restructuring of the Slovak unemployment benefit system," European Economic Review, Elsevier, vol. 41(3-5), pages 925-934, April.
    5. Tito Boeri, 1994. ""Transitional" unemployment," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 2(1), pages 1-25, March.
    6. Flinn, Christopher J., 1997. "Labor Market Structure and Welfare: A Comparison of Italy and the U.S," Working Papers 97-07, C.V. Starr Center for Applied Economics, New York University.
    7. Puhani, Patrick A. & Steiner, Viktor, 1996. "Public works for Poland? Active labour market policies during transition," ZEW Discussion Papers 96-01, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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