## _wp14234

## Source details

**Canonical URL:** [_wp14234](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2014/_wp14234.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2014/_wp14234.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2014/_wp14234.pdf.json)

---

### I. INTRODUCTION
- Development of local capital markets has been a long-standing policy question; many countries implemented reforms to foster domestic capital market development as part of broader financial system reforms.
- Promoted by international organizations such as the IMF, the World Bank, and the OECD on grounds that local capital markets:
  - promote economic growth through better capital allocation and risk sharing;
  - allow governments to finance large fiscal deficits without financial repression or foreign-currency borrowing (Turner, 2002).
- Experience is mixed: some countries developed sizeable, liquid local markets; others stagnated or collapsed despite repeated interventions.
- Concerns about volatile international capital flows and financial globalization (Stiglitz, 2002; Arcand, Berkes, and Panizza, 2012; Milesi-Ferretti and Tille, 2011; Lane and Milesi-Ferretti, 2012).
- Paper focus: review literature on benefits and costs of local capital market development, emphasis on local bond markets (Herring and Chatusripitak, 2001).

### II. THE RATIONALE FOR LOCAL CAPITAL MARKETS
- Complementary channels through which local capital markets benefit borrowers and investors:
  - Governments can finance large fiscal deficits domestically without financial repression or foreign-currency exposure.
  - Money and bond markets support monetary policy implementation, improve transmission, facilitate sterilization, and provide information on macro expectations (IMF, 2004).
  - Improve availability of long-term financing and allow households/firms to manage interest rate and maturity risk.
  - Improve access to local-currency financing, helping manage inflation and exchange rate risk and offering alternatives to bank deposits (Gormley et al., 2006).
  - Promote financial deepening, provide competition to bank lending, improve disclosure and firm performance.
  - When opened to foreign investors, increase financial integration, lower cost of capital, and enhance risk sharing—though internationalization can also hamper domestic market development (Eichengreen, Borensztein, and Panizza, 2006; De la Torre, Gozzi, and Schmukler, 2006).
  - Enhance financial stability by enabling risk management via derivatives and acting as a “spare tire” to bank finance in crises (example: Korean crisis, 1998; Gormley, Johnson, and Rhee, 2006).

### III. THE CURRENT STATE OF DEVELOPMENT OF LOCAL CAPITAL MARKETS
- Key aggregate changes (as % of GDP, 1994 to 2010):
  - World:
    - Total bonds outstanding: 47.1 → 72.2
    - Outstanding domestic private debt securities: 17.0 → 22.9
    - Outstanding domestic public debt securities: 23.5 → 34.2
    - Outstanding international private debt securities: 2.8 → 9.1
    - Outstanding international public debt securities: 3.8 → 6.0
    - Stock market capitalization: 24.1 → 37.8
  - High income:
    - Total bonds outstanding: 66.8 → 109.6
    - Outstanding domestic private debt securities: 27.5 → 33.3
    - Stock market capitalization: 34.1 → 58.2
  - Upper middle income:
    - Total bonds outstanding: 13.3 → 53.6
    - Outstanding domestic private debt securities: 2.4 → 13.3
    - Stock market capitalization: 14.6 → 33.3
  - Lower middle income:
    - Total bonds outstanding: 42.0 → 35.3
    - Outstanding domestic private debt securities: 0.9 → 1.6
    - Outstanding domestic public debt securities: 35.0 → 29.2
    - Stock market capitalization: 18.6 → 20.0
  - Low income:
    - Stock market capitalization: 24.1 → 19.9
- Findings:
  - Domestic private bond markets grew fastest in upper middle income countries (2.4 percent of GDP in 1994 to 13.3 percent of GDP in 2010).
  - By 2010, domestic bonds accounted for 79 percent and public sector bonds for 56 percent of bonds outstanding.
  - Considerable cross-country variation: domestic private bonds = 30 percent of bonds outstanding in high income countries; 25 percent in upper middle income countries; 4.5 percent in lower middle income countries.
  - International debt issues grew more rapidly than domestic bond issues; international listings/issuances remain attractive.
  - Historical perspective: many countries were more financially developed in 1913 than in 1980 and only recently surpassed 1913 levels (Rajan and Zingales, 2003). Reversals in local market development are not uncommon.

### IV. CHALLENGES IN THE DEVELOPMENT OF LOCAL CAPITAL MARKETS
- Preconditions grouped into: sound macroeconomic policy; strong institutional and legal setting; well-functioning financial infrastructure; and minimum market size. Sequencing of reforms is important.

A. Stable macroeconomic policies
- Stable macroeconomic framework attracts foreign capital and supports monetary policy without excessive interest rate volatility.
- Empirical evidence: countries with stable inflation rates have more developed local bond markets and rely less on foreign-currency bonds (Burger and Warnock, 2006).
- Figure 1: local market development higher in richer countries and in countries with lower inflation rates (market capitalization measures at end-2013; GDP per capita measured in 2003; inflation measured 1999-2003).

B. Strong legal and institutional environment
- Investor protection, creditor rights, and contract enforcement critical for local market development (Burger and Warnock, 2006; Eichengreen and Luengnaruemitchai, 2006; LaPorta et al., 1997, 1998, 2002).
- Figure 2: stronger private enforcement, shareholder rights, and contract enforcement associated with higher market capitalization (end-2013 measures; private enforcement index 0–1; anti-directors index 0–6; days to enforce a contract measured as of January 2003).
- Securities laws that mandate disclosure and facilitate private enforcement (liability standards) are beneficial; public enforcement has little impact (LaPorta et al., 2006).
- Corporate governance weaknesses (high ownership concentration, poor oversight) can impede equity and corporate bond market development (Claessens, Klingebiel, and Lubrano, 2000).
- Banking and bond market development complement each other; developed banking sectors correlate with more developed bond markets (Burger and Warnock, 2006; Eichengreen and Luegnaruemitchai, 2004).
- Risks: captive bank holdings of government bonds can produce financial repression and close bank-sovereign links (Reinhart and Sbrancia, 2011; Gennaioli, Martin, and Rossi, 2013).

C. Financial infrastructure
- Trading platforms, regulatory apparatus, disclosure, rating agencies, clearing and settlement systems, auditors, and brokers are necessary for market functioning.
- High fixed costs (listing requirements, transaction costs, auditor expenses) deter small issuers and investors.
- Bond markets require higher-quality public information and enforcement than equity markets because bonds have limited upside.
- Historical evidence: mandated disclosure reduces abnormal return dispersion and supports investor confidence (Greenstone, Oyer, and Vissing-Jorgenson, 2006; Simon, 1989).

D. Market size and complementarity
- Critical mass of investors needed for depth and liquidity; lack of scale often limits small economies.
- Policies to increase market size: pension reforms, financial liberalization, tax reforms, and attracting foreign investors—each with tradeoffs (Giannetti and Laeven, 2009; Chile example: funded pension system launched in 1981).
- Complementarities: public bond markets provide yield curves and benchmarks for private bond markets; derivatives need underlying markets; money markets support bond market development.
- Where scale is insufficient, foreign listings or regional exchanges may be preferred over local illiquid markets.

Empirical regression evidence (Table 2: dependent variable = Local market development/GDP (%)):
- Private enforcement of securities laws: coefficient 202.67*** (standard error 41.05) in specification (1).
- Shareholder rights: coefficient 33.22*** (standard error 9.40) in specification (2).
- Debt contract enforcement (ln days to enforce contract): coefficient -37.27*** (standard error 12.46) in specification (3).
- Private credit/GDP (%): coefficient 0.89*** (standard error 0.24) in specification (4).
- Average inflation (%) coefficients: -1.78, -2.77, -3.22*, -2.15 (standard errors 1.33; 1.76; 1.87; 1.51 across specifications).
- ln(GDP per capita) coefficients: 62.99***, 63.77***, 37.86**, 4.63 (standard errors 16.40; 17.63; 18.39; 20.40).
- Observations: 36, 41, 42, 35 across specifications (1)–(4).
- R-squared: 0.57, 0.51, 0.41, 0.52 across specifications.
- Notes: variables measured as described in text; regressions use OLS with Huber-White standard errors; ***, **, * denote significance at 1%, 5%, and 10% respectively.

### V. CONCLUSIONS — POLICY-RELEVANT FINDINGS AND RECOMMENDATIONS
- Findings:
  - Local capital markets face substantial challenges in developing economies: small market size, weak institutions, and unstable macroeconomic policies.
  - Development is gradual, requires sequencing, and depends on country circumstances (economic size, stage of development).
  - Complementarities across market segments (banking, public bonds, private bonds, equities, derivatives) are important; reforms should account for these interactions.

- Policy recommendations:
  - Ensure sound macroeconomic policies and clear debt management/issuance strategies before attempting rapid local market development.
  - Strengthen legal and institutional frameworks to protect investor and creditor rights:
    - Promote private enforcement mechanisms and mandatory disclosure/ liability standards.
    - Undertake corporate governance reforms where ownership concentration and weak oversight impede market development.
  - Build financial infrastructure progressively:
    - Establish reliable trading platforms, clearing and settlement, rating agencies, auditors, and effective regulators.
    - Recognize higher disclosure and enforcement requirements for bond markets relative to equity markets.
  - Increase market size prudently:
    - Consider pension reforms, tax incentives, and phased financial liberalization to broaden the investor base while managing volatility risks.
    - Where domestic scale is insufficient, encourage foreign listings or participation in regional exchanges.
  - Sequence reforms and coordinate with financial liberalization:
    - Capital account opening should be timed with improvements in macroeconomic stability, institutional strength, and market infrastructure to avoid excessive volatility.
  - Promote rules that standardize securities products, mandate disclosure, and punish market misbehavior to cultivate efficient primary and secondary markets.

- Desired end-state characteristics of a developed local capital market:
  - Primary market for equity and bond issuances in a range of standard maturities.
  - Secondary market with continuous price information, low transaction costs, and effective custodial and safekeeping services.
  - Local-currency bond market providing a safe asset without exchange rate risk.
  - Recognition that not every country needs a fully fledged domestic physical capital market; optimal balance with global integration depends on country-specific factors.

*Source: _wp14234 - References .............................................................................................................*

### References .............................................................................................................

### References ................................................................................................................................20

### I. INTRODUCTION
- Development of local capital markets has been a long-standing policy question; many countries implemented reforms to foster domestic capital market development as part of broader financial system reforms.
- Promoted by international organizations such as the IMF, the World Bank, and the OECD on grounds that local capital markets:
  - promote economic growth through better capital allocation and risk sharing;
  - allow governments to finance large fiscal deficits without financial repression or foreign-currency borrowing (Turner, 2002).
- Experience is mixed: some countries developed sizeable, liquid local markets; others stagnated or collapsed despite repeated interventions.
- Concerns about volatile international capital flows and financial globalization (Stiglitz, 2002; Arcand, Berkes, and Panizza, 2012; Milesi-Ferretti and Tille, 2011; Lane and Milesi-Ferretti, 2012).
- Paper focus: review literature on benefits and costs of local capital market development, emphasis on local bond markets (Herring and Chatusripitak, 2001).

### II. THE RATIONALE FOR LOCAL CAPITAL MARKETS
- Complementary channels through which local capital markets benefit borrowers and investors:
  - Governments can finance large fiscal deficits domestically without financial repression or foreign-currency exposure.
  - Money and bond markets support monetary policy implementation, improve transmission, facilitate sterilization, and provide information on macro expectations (IMF, 2004).
  - Improve availability of long-term financing and allow households/firms to manage interest rate and maturity risk.
  - Improve access to local-currency financing, helping manage inflation and exchange rate risk and offering alternatives to bank deposits (Gormley et al., 2006).
  - Promote financial deepening, provide competition to bank lending, improve disclosure and firm performance.
  - When opened to foreign investors, increase financial integration, lower cost of capital, and enhance risk sharing—though internationalization can also hamper domestic market development (Eichengreen, Borensztein, and Panizza, 2006; De la Torre, Gozzi, and Schmukler, 2006).
  - Enhance financial stability by enabling risk management via derivatives and acting as a “spare tire” to bank finance in crises (example: Korean crisis, 1998; Gormley, Johnson, and Rhee, 2006).

### III. THE CURRENT STATE OF DEVELOPMENT OF LOCAL CAPITAL MARKETS
Key aggregate changes (as % of GDP, 1994 to 2010):
- World:
  - Total bonds outstanding: 47.1 → 72.2
  - Outstanding domestic private debt securities: 17.0 → 22.9
  - Outstanding domestic public debt securities: 23.5 → 34.2
  - Outstanding international private debt securities: 2.8 → 9.1
  - Outstanding international public debt securities: 3.8 → 6.0
  - Stock market capitalization: 24.1 → 37.8
- High income:
  - Total bonds outstanding: 66.8 → 109.6
  - Outstanding domestic private debt securities: 27.5 → 33.3
  - Stock market capitalization: 34.1 → 58.2
- Upper middle income:
  - Total bonds outstanding: 13.3 → 53.6
  - Outstanding domestic private debt securities: 2.4 → 13.3
  - Stock market capitalization: 14.6 → 33.3
- Lower middle income:
  - Total bonds outstanding: 42.0 → 35.3
  - Outstanding domestic private debt securities: 0.9 → 1.6
  - Outstanding domestic public debt securities: 35.0 → 29.2
  - Stock market capitalization: 18.6 → 20.0
- Low income:
  - Stock market capitalization: 24.1 → 19.9

Findings:
- Domestic private bond markets grew fastest in upper middle income countries (2.4 percent of GDP in 1994 to 13.3 percent of GDP in 2010).
- By 2010, domestic bonds accounted for 79 percent and public sector bonds for 56 percent of bonds outstanding.
- Considerable cross-country variation: domestic private bonds = 30 percent of bonds outstanding in high income countries; 25 percent in upper middle income countries; 4.5 percent in lower middle income countries.
- International debt issues grew more rapidly than domestic bond issues; international listings/issuances remain attractive.
- Historical perspective: many countries were more financially developed in 1913 than in 1980 and only recently surpassed 1913 levels (Rajan and Zingales, 2003). Reversals in local market development are not uncommon.

### IV. CHALLENGES IN THE DEVELOPMENT OF LOCAL CAPITAL MARKETS
- Preconditions grouped into: sound macroeconomic policy; strong institutional and legal setting; well-functioning financial infrastructure; and minimum market size. Sequencing of reforms is important.

A. Stable macroeconomic policies
- Stable macroeconomic framework attracts foreign capital and supports monetary policy without excessive interest rate volatility.
- Empirical evidence: countries with stable inflation rates have more developed local bond markets and rely less on foreign-currency bonds (Burger and Warnock, 2006).
- Figure 1: local market development higher in richer countries and in countries with lower inflation rates (market capitalization measures at end-2013; GDP per capita measured in 2003; inflation measured 1999-2003).

B. Strong legal and institutional environment
- Investor protection, creditor rights, and contract enforcement critical for local market development (Burger and Warnock, 2006; Eichengreen and Luengnaruemitchai, 2006; LaPorta et al., 1997, 1998, 2002).
- Figure 2: stronger private enforcement, shareholder rights, and contract enforcement associated with higher market capitalization (end-2013 measures; private enforcement index 0–1; anti-directors index 0–6; days to enforce a contract measured as of January 2003).
- Securities laws that mandate disclosure and facilitate private enforcement (liability standards) are beneficial; public enforcement has little impact (LaPorta et al., 2006).
- Corporate governance weaknesses (high ownership concentration, poor oversight) can impede equity and corporate bond market development (Claessens, Klingebiel, and Lubrano, 2000).
- Banking and bond market development complement each other; developed banking sectors correlate with more developed bond markets (Burger and Warnock, 2006; Eichengreen and Luegnaruemitchai, 2004).
- Risks: captive bank holdings of government bonds can produce financial repression and close bank-sovereign links (Reinhart and Sbrancia, 2011; Gennaioli, Martin, and Rossi, 2013).

C. Financial infrastructure
- Trading platforms, regulatory apparatus, disclosure, rating agencies, clearing and settlement systems, auditors, and brokers are necessary for market functioning.
- High fixed costs (listing requirements, transaction costs, auditor expenses) deter small issuers and investors.
- Bond markets require higher-quality public information and enforcement than equity markets because bonds have limited upside.
- Historical evidence: mandated disclosure reduces abnormal return dispersion and supports investor confidence (Greenstone, Oyer, and Vissing-Jorgenson, 2006; Simon, 1989).

D. Market size and complementarity
- Critical mass of investors needed for depth and liquidity; lack of scale often limits small economies.
- Policies to increase market size: pension reforms, financial liberalization, tax reforms, and attracting foreign investors—each with tradeoffs (Giannetti and Laeven, 2009; Chile example: funded pension system launched in 1981).
- Complementarities: public bond markets provide yield curves and benchmarks for private bond markets; derivatives need underlying markets; money markets support bond market development.
- Where scale is insufficient, foreign listings or regional exchanges may be preferred over local illiquid markets.

Empirical regression evidence (Table 2: dependent variable = Local market development/GDP (%)):
- Private enforcement of securities laws: coefficient 202.67*** (standard error 41.05) in specification (1).
- Shareholder rights: coefficient 33.22*** (standard error 9.40) in specification (2).
- Debt contract enforcement (ln days to enforce contract): coefficient -37.27*** (standard error 12.46) in specification (3).
- Private credit/GDP (%): coefficient 0.89*** (standard error 0.24) in specification (4).
- Average inflation (%) coefficients: -1.78, -2.77, -3.22*, -2.15 (standard errors 1.33; 1.76; 1.87; 1.51 across specifications).
- ln(GDP per capita) coefficients: 62.99***, 63.77***, 37.86**, 4.63 (standard errors 16.40; 17.63; 18.39; 20.40).
- Observations: 36, 41, 42, 35 across specifications (1)–(4).
- R-squared: 0.57, 0.51, 0.41, 0.52 across specifications.
- Notes: variables measured as described in text; regressions use OLS with Huber-White standard errors; ***, **, * denote significance at 1%, 5%, and 10% respectively.

### V. CONCLUSIONS — POLICY-RELEVANT FINDINGS AND RECOMMENDATIONS
Findings:
- Local capital markets face substantial challenges in developing economies: small market size, weak institutions, and unstable macroeconomic policies.
- Development is gradual, requires sequencing, and depends on country circumstances (economic size, stage of development).
- Complementarities across market segments (banking, public bonds, private bonds, equities, derivatives) are important; reforms should account for these interactions.

Policy recommendations (derived from literature):
- Ensure sound macroeconomic policies and clear debt management/issuance strategies before attempting rapid local market development.
- Strengthen legal and institutional frameworks to protect investor and creditor rights:
  - Promote private enforcement mechanisms and mandatory disclosure/ liability standards.
  - Undertake corporate governance reforms where ownership concentration and weak oversight impede market development.
- Build financial infrastructure progressively:
  - Establish reliable trading platforms, clearing and settlement, rating agencies, auditors, and effective regulators.
  - Recognize higher disclosure and enforcement requirements for bond markets relative to equity markets.
- Increase market size prudently:
  - Consider pension reforms, tax incentives, and phased financial liberalization to broaden the investor base while managing volatility risks.
  - Where domestic scale is insufficient, encourage foreign listings or participation in regional exchanges.
- Sequence reforms and coordinate with financial liberalization:
  - Capital account opening should be timed with improvements in macroeconomic stability, institutional strength, and market infrastructure to avoid excessive volatility.
- Promote rules that standardize securities products, mandate disclosure, and punish market misbehavior to cultivate efficient primary and secondary markets.

Desired end-state characteristics of a developed local capital market:
- Primary market for equity and bond issuances in a range of standard maturities.
- Secondary market with continuous price information, low transaction costs, and effective custodial and safekeeping services.
- Local-currency bond market providing a safe asset without exchange rate risk.
- Recognition that not every country needs a fully fledged domestic physical capital market; optimal balance with global integration depends on country-specific factors.

*Source: _wp14234 - References .............................................................................................................*

### REFERENCES

### REFERENCES

### Mandatory disclosure and securities regulation
- Admati, Anat R., and Paul Pfleiderer, 2000, “Forcing firms to talk: financial disclosure regulation and externalities,” Review of Financial Studies, Vol. 13, No. 3, pp. 479-519.
- Benston, George, 1973, “Required disclosure and the stock market: an evaluation of the Securities Market Act of 1934,” American Economic Review, Vol. 63, pp. 132–155.
- Coffee, John, 1984, “Market failure and the economic case for a mandatory disclosure system,” Virginia Law Review, Vol. 70, pp. 717–753.
- Easterbrook, Frank, and Daniel Fischel, 1984, “Mandatory disclosure and the protection of investors,” Virginia Law Review, Vol. 70, pp. 669–715.
- Fischel, Daniel, and Sanford Grossman, 1984, “Customer protection in futures and securities markets,” Journal of Futures Markets, Vol. 4, pp. 273–295.
- Fox, Merritt, 1999, “Retaining mandatory disclosure: Why issuer choice is not investor empowerment,” Virginia Law Review, Vol. 85, pp. 1335–1419.
- Greenstone, Michael, Paul Oyer, and Annette Vissing-Jorgensen, 2006, “Mandated disclosure, stock returns, and the 1964 securities acts amendments,” Quarterly Journal of Economics, Vol. 121, No. 2, pp. 399-460.
- Mahoney, Paul, 1995, “Mandatory disclosure as a solution to agency problems,” University of Chicago Law Review, Vol. 62, pp. 1047–1112.
- Ross, Stephen, 1979, “Disclosure regulation in financial markets: Implication of modern finance theory and signaling theory,” in Issues in Financial Regulation, ed. by Franklin Edwards (New York: McGraw-Hill).
- Simon, Carol, 1989, “The effect of the 1933 Securities Act on investor information and the performance of new issues,” American Economic Review, Vol. 79, pp. 295–318.

### Bond markets, fixed-income, and local/foreign participation
- Arcand, Jean-Louis, Enrico Berkes, and Ugo Panizza, 2012, “Too much finance?”, IMF Working Paper 12/161 (Washington: International Monetary Fund).
- Borensztein, Eduardo, Kevin Cowan, Barry Eichengreen, and Ugo Panizza (Eds.), 2008, Building Bond Markets in Latin America, MIT Press, Cambridge, MA.
- Borensztein, Eduardo, Barry Eichengreen, and Ugo Panizza, 2006, “A tale of two markets: bond market development in East Asia and Latin America,” HKIMR Occasional Paper No.3 (Hong Kong: Institute for Monetary Research).
- Burger, John D., Francis E. Warnock, and Veronica Warnock, 2012, “Emerging local currency bond markets,” Financial Analysts Journal, Vol. 68, No. 4, pp. 73-93.
- Burger, John D., and Francis E. Warnock, 2006, “Local currency bond markets,” Staff Papers, International Monetary Fund, Vol. 53, pp. 115-132.
- Burger, John D., and Francis E. Warnock, 2006, “Foreign participation in local currency bond markets,” NBER Working Paper No. 12548 (Cambridge, MA: National Bureau of Economic Research).
- Cifuentes, Rodrigo, Jorge Desormeaux, and Claudio González, 2002, “Capital markets in Chile: from financial repression to financial deepening,” in: The development of bond markets in emerging economies, BIS Paper No. 11, Chapter 6, pp. 86-102 (Basel: Bank for International Settlements).
- Dittmar, Robert F., and Kathy Yuan, 2008, “Do sovereign bonds benefit corporate bonds in emerging markets?” The Review of Financial Studies, Vol. 21, No. 5, pp. 1983-2014.
- Eichengreen, Barry, and Pipat Luengnaruemitchai, 2004, “Why doesn’t Asia have bigger bond markets?” NBER Working Paper No. 10576, (Cambridge, MA: National Bureau of Economic Research).
- Eichengreen, Barry, and Pipat Luengnaruemitchai, 2006, “Bond markets as conduits for capital flows: how does Asia compare?” NBER Working Paper No. 12408 (Cambridge, MA: National Bureau of Economic Research).
- Harwood, Alison, 2000, “Building local bond markets: some issues and actions,” in Building Local Bond Markets: An Asian Perspective, ed. by Alison Hardwood, Chapter 1 (Washington: International Finance Corporation).
- Hawkins, John, 2002, “Bond markets and banks in emerging economies,” in The development of bond markets in emerging economies, BIS Paper No. 11, Chapter 3, pp. 42-48 (Basel: Bank for International Settlements).
- Herring, Richard J., and Nathporn Chatusripitak, 2001, “The case of the missing market: the bond market and why it matters for financial development,” Wharton Financial Institutions Center Working Paper No. 01-08 (Philadelphia: University of Pennsylvania).
- Mihaljek, Dubravko, Michela Scatigna, and Agustin Villar, 2002, “Recent trends in bond markets” in The development of bond markets in emerging economies, BIS Paper No. 11, Chapter 2, pp. 13-41 (Basel: Bank for International Settlements).
- Mohanty, M.S., 2002, “Improving liquidity in government bond markets: what can be done?” in: The development of bond markets in emerging economies, BIS Paper No. 11, Chapter 4, pp. 49-80 (Basel: Bank for International Settlements).
- Schinasi, Garry, and R. Todd Smith, 1998, “Fixed-income markets in the United States, Europe, and Japan: Some lessons for emerging markets,” IMF Working Paper No. 98/173 (Washington: International Monetary Fund).
- Turner, Philip, 2002, “Bond markets in emerging economies: an overview of policy issues.” in The development of bond markets in emerging economies, BIS Paper No. 11, Chapter 1, pp. 1-12 (Basel: Bank for International Settlements).
- Vittas, Dimitri, 1992, “Contractual savings and emerging securities markets,” Policy Research Working Paper 858 (Washington: The World Bank).
- Gormley, Todd, Simon Johnson, and Changyong Rhee, 2008, “Corporate bonds: A spare tire in emerging markets?” Unpublished manuscript (Washington: International Monetary Fund).

### Law, investor protection, corporate governance, and institutions
- Black, Bernard, 2001, “The legal and institutional preconditions for strong securities markets,” UCLA Law Review, Vol. 48, pp. 781–858.
- Djankov, Simeon, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer, 2003, “Courts,” Quarterly Journal of Economics, Vol. 118, pp. 453–517.
- Djankov, Simeon, Rafael LaPorta, Florencio Lopez-de-Silanes, and Andrei Shleifer, 2008, “The law and economics of self-dealing,” Journal of Financial Economics, Vol. 88, No. 3, pp. 430-465.
- Djankov, Simeon, Caralee McLiesh, and Andrei Shleifer, 2007, “Private credit in 129 countries,” Journal of Financial Economics, Vol. 12, No. 2, pp. 77-99.
- LaPorta, Rafael, Florencio Lopez-de-Silanes, and Andrei Shleifer, 2002, “Government ownership of banks,” Journal of Finance, Vol. 57, pp. 265–301.
- LaPorta, Rafael, Florencio Lopez-de-Silanes, and Andrei Shleifer, 2006, “What works in securities laws?” Journal of Finance, Vol. 61, No. 1, pp. 1-32.
- LaPorta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert Vishny, 1997, “Legal determinants of external finance,” Journal of Finance, Vol. 52, pp. 1131–1150.
- LaPorta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert Vishny, 1998, “Law and finance,” Journal of Political Economy, Vol. 106, pp. 1113–1155.
- LaPorta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert Vishny, 2002, “Investor protection and corporate valuation,” Journal of Finance, Vol. 57, pp. 1147–1170.
- Giannetti, Mariassunta, and Luc Laeven, 2009, “Pension reform, ownership structure, and corporate governance: evidence from a natural experiment,” Review of Financial Studies, Vol. 22, No. 10, pp. 4091-4127.
- Shleifer, Andrei, and Daniel Wolfenzon, 2002, “Investor protection and equity markets,” Journal of Financial Economics, Vol. 66, pp. 3–27.
- Pistor, Katharina, and Chenggang Xu, 2002, “Law enforcement under incomplete law: Theory and evidence from financial market regulation,” Columbia Law School, mimeo.
- Musacchio, Aldo, 2008, “Can civil law countries get good institutions? Lessons from the history of creditor rights and bond markets in Brazil,” Journal of Economic History, Vol. 68, No. 1, pp. 80-108.
- Rajan, Raghuram G., and Luigi Zingales, 2003, “The great reversals: the politics of financial development in the twentieth century,” Journal of Financial Economics, Vol. 69, pp. 5–50.
- Djankov, Simeon, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer, 2008, “The law and economics of self-dealing,” Journal of Financial Economics, Vol. 88, No. 3, pp. 430-465.

### Financial development, banks, and macro-financial interactions
- De Fiore, Fiorella, and Harald Uhlig, 2005, “Bank finance versus bond finance: what explains the differences between the US and Europe,” CEPR Discussion Paper No. 5213 (London: Centre for Economic Policy Research).
- De la Torre, Augusto, Juan Carlos Gozzi, and Sergio L. Schmukler, 2007, “Stock market development under globalization: Whither the gains from reforms?” Journal of Banking & Finance, Vol. 31, Issue 6, (June), pp. 1731–1754.
- De la Torre, Augusto, Juan Carlos Gozzi, and Sergio L. Schmukler, 2008, “Capital market development: whither Latin America?” in Financial Markets Volatility and Performance in Emerging Markets, ed. by Sebastian Edwards & Marcio G. P. Garcia, NBER Books, Chapter 4, pp. 121-153 (Cambridge, MA: National Bureau of Economic Research).
- De Long, Bradford, 1991, “Did J.P. Morgan’s men add value? An economist’s perspective on financial capitalism,” in Peter Temin, ed.: Inside the Business Enterprise: Historical Perspectives on the Use of Information (Chicago, IL: University of Chicago Press).
- Gennaioli, Nicola, Alberto Martin, and Stefano Rossi, 2013, “Sovereign Default, Domestic Banks and Financial Institutions,” Journal of Finance, forthcoming.
- Laeven, Luc, and Enrico C. Perotti, 2001, Confidence building in emerging stock markets, CEPR Discussion Paper No. 3055.
- Lane, Philip R., and Gian Maria Milesi-Ferretti, 2012, “External adjustment and the global crisis,” Journal of International Economics, Vol. 88, No. 2, pp. 252-265.
- Levine, Ross, and Sara Zervos, 1998, “Stock markets, banks, and economic growth,” American Economic Review, Vol. 88, pp. 537–558.
- Milesi-Ferretti, Gian Maria, and Cedric Tille, 2011, “The great retrenchment: international capital flows during the global financial crisis,” Economic Policy, Vol. 26, pp. 285-342.
- Reinhart, Carmen, and Belen Sbrancia, 2011, “The liquidation of government debt,” NBER Working Paper No. 16893 (Cambridge, MA: National Bureau of Economic Research).
- Stiglitz, Joseph E., 2002, Globalization and Its Discontents (New York: W.W. Norton).

### Markets, intermediaries, reputation, and information production
- Chemmanur, Thomas, and Paolo Fulghieri, 1994, “Investment bank reputation, information production, and financial intermediation,” Journal of Finance, Vol. 49, pp. 57–79.
- Grossman, Sanford, 1981, “The informational role of warranties and private disclosure about product quality,” Journal of Law and Economics, Vol. 24, pp. 461–483.
- Grossman, Sanford, and Oliver Hart, 1980, “Disclosure laws and takeover bids,” Journal of Finance, Vol. 35, pp. 323–334.
- Friend, Irwin, and Edward Herman, 1964, “The S.E.C. through a glass darkly,” Journal of Business, Vol. 37, pp. 382–405.
- Macey, Jonathan, 1994, “Administrative agency obsolescence and interest group formation: A case study of the SEC at sixty,” Cardozo Law Review, Vol. 15, pp. 909–949.
- Romano, Roberta, 2001, “The need for competition in international securities regulation,” Theoretical Inquiries in Law, Vol. 2, pp. 1–179.
- Stigler, George, 1964, “Public regulation of the securities market,” Journal of Business, Vol. 37, pp. 117–142.
- Vittas, Dimitri, 1992, “Contractual savings and emerging securities markets,” Policy Research Working Paper 858 (Washington: The World Bank).

### IMF and multilateral institution contributions
- IMF, 2002, “Emerging equity markets,” in Global Financial Stability Report, Chapter 4 (Washington: International Monetary Fund).
- IMF, 2004, “Monetary Policy Implementation at Different Stages of Market Development,” IMF Board Paper available at: https://www.imf.org/external/np/mfd/2004/eng/102604.htm.
- Borensztein, Eduardo, Kevin Cowan, Barry Eichengreen, and Ugo Panizza (Eds.), 2008, Building Bond Markets in Latin America, MIT Press, Cambridge, MA.
- Schinasi, Garry, and R. Todd Smith, 1998, “Fixed-income markets in the United States, Europe, and Japan: Some lessons for emerging markets,” IMF Working Paper No. 98/173 (Washington: International Monetary Fund).
- Gormley, Todd, Simon Johnson, and Changyong Rhee, 2008, “Corporate bonds: A spare tire in emerging markets?” Unpublished manuscript (Washington: International Monetary Fund).

*References list as provided in the source PDF.*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2014/_wp14234.pdf_