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

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  • 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.

Suggested Citation

  • Richard J. Herring & Nathporn Chatusripitak, 2000. "The Case of the Missing Market: The Bond Market and Why It Matters for Financial Development," Center for Financial Institutions Working Papers 01-08, Wharton School Center for Financial Institutions, University of Pennsylvania.
  • Handle: RePEc:wop:pennin:01-08
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    File URL: http://fic.wharton.upenn.edu/fic/papers/01/0108.pdf
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    References listed on IDEAS

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    Cited by:

    1. Batten, Jonathan A. & Fetherston, Thomas A. & Hoontrakul, Pongsak, 2006. "Factors affecting the yields of emerging market issuers: Evidence from the Asia-Pacific region," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 16(1), pages 57-70, February.
    2. Augusto de la Torre & Sergio Schmukler, 2007. "Emerging Capital Markets and Globalization: The Latin American Experience," IDB Publications (Books), Inter-American Development Bank, number 349.
    3. Claessens,Stijn & Klingebiel,Daniela M. H. & Schmukler,Sergio L., 2003. "Government bonds in domestic and foreign currency: the role of macroeconomic and institutional factors," Policy Research Working Paper Series 2986, The World Bank.
    4. 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.
    5. Bhattacharyay, Biswa Nath, 2013. "Determinants of bond market development in Asia," Journal of Asian Economics, Elsevier, vol. 24(C), pages 124-137.
    6. Boyd, John H. & Jalal, Abu M., 2012. "A new measure of financial development: Theory leads measurement," Journal of Development Economics, Elsevier, vol. 99(2), pages 341-357.
    7. Schou-Zibell, Lotte & Wells, Stephen, 2008. "India's Bond Market-Developments and Challenges Ahead," Working Papers on Regional Economic Integration 22, Asian Development Bank.
    8. Michael Kumhof & Evan C Tanner, 2005. "Government Debt; A Key Role in Financial Intermediation," IMF Working Papers 05/57, International Monetary Fund.
    9. Lamberte, Mario B., 2002. "ASEAN's Fledgling Debt Securities Markets: More tasks Ahead," Discussion Papers DP 2002-05, Philippine Institute for Development Studies.
    10. Nasution, Anwar, 2005. "Monetary cooperation in East Asia," Journal of Asian Economics, Elsevier, vol. 16(3), pages 422-442, June.
    11. Jonathan A. Batten & Warren P. Hogan & Peter G. Szilagyi, 2012. "Foreign Bond Markets and Financial Market Development: International Perspectives," Chapters,in: Implications of the Global Financial Crisis for Financial Reform and Regulation in Asia, chapter 12 Edward Elgar Publishing.
    12. Barry Eichengreen & Pipat Luengnaruemitchai, 2006. "Why doesn’t Asia have bigger bond markets?," BIS Papers chapters,in: Bank for International Settlements (ed.), Asian bond markets: issues and prospects, volume 30, pages 40-77 Bank for International Settlements.
    13. 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.
    14. repec:eee:riibaf:v:44:y:2018:i:c:p:394-410 is not listed on IDEAS
    15. International Monetary Fund, 2005. "Mexico; Selected Issues," IMF Staff Country Reports 05/428, International Monetary Fund.
    16. International Monetary Fund, 2003. "Managing Risks in Financial Market Development; The Role of Sequencing," IMF Working Papers 03/116, International Monetary Fund.
    17. Saoussen Ben Gamra, 2009. "Marchés obligataires et stabilité financière: L'expérience asiatique," CEPN Working Papers hal-00574161, HAL.
    18. Saoussen Ben Gamra, 2009. "Marchés obligataires et stabilité financière: L'expérience asiatique," Working Papers hal-00574161, HAL.
    19. Shirai, Sayuri, 2004. "Testing the Three Roles of Equity Markets in Developing Countries: The Case of China," World Development, Elsevier, vol. 32(9), pages 1467-1486, September.
    20. Barry Eichengreen & Pipat Luengnaruemitchai, 2004. "Why Dones't Asia have the biger bond markets," Working Papers 242004, Hong Kong Institute for Monetary Research.
    21. Yong Sarah Zhou, 2008. "Capital Flows and Economic Fluctuations; The Role of Commercial Banks in Transmitting Shocks," IMF Working Papers 08/12, International Monetary Fund.
    22. Stijn Claessens & Daniela Klingebiel & Sergio L. Schmukler, 2007. "Government Bonds in Domestic and Foreign Currency: the Role of Institutional and Macroeconomic Factors," Review of International Economics, Wiley Blackwell, vol. 15(2), pages 370-413, May.
    23. Augusto de la Torre & Sergio L. Schmukler, 2007. "Emerging Capital Markets and Globalization : The Latin American Experience," World Bank Publications, The World Bank, number 7187, September.
    24. Marshall Mays, 2007. "The Importance of Domestic Institutional Investors in Pakistan’s Growing Bond Market," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 3, pages 89-106.

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