Institutions, policy environments, and LDC stock market development.

摘要

This dissertation explores the issue of LDC stock market development in the post-Bretton Woods era from an institutional perspective. Since the collapse of the Bretton Woods regime between 1971 and 1973, the international financial system has witnessed two coevolving and interrelated trends---namely, the reemergence of highly mobile international capital flows and the ascendance of neoliberal policy prescriptions for development as embodied in the so called Washington Consensus. However, while these factors may account for the spread of stock markets across the developing world in the last twenty-five years, they are more difficult to reconcile with uneven development of such exchanges. To address the issue of uneven market development under similar structural conditions, I focus on the ability of formal political institutions within LDCs to provide a policy environment conducive to investment and economic activity. Specifically, I argue that the dispersal of domestic veto players is a key factor in the development of LDC equity markets because they provide important cues to market actors regarding the relative stability and flexibility of a country's policy posture. Because market actors are keenly aware of the incentives sovereign governments have to renege on policy pledges ex post, they require informational cues regarding the ability of governments to change or reverse policies quickly. Thus, institutional veto arrangements that stabilize a country's policy environment and constrain the ability of governments to alter policies enhance a country's policy credibility over time. This, in turn, supports LDC stock market development. My empirical examination of this theorized process proceeds in two steps. First, using a large panel of developing countries from 1980 to 2000, I test the hypothesis that the policy stability provided by wider dispersals of veto authority promotes stock market development. Second, I examine the argument's causal mechanism by analyzing the impact of policy stability on the equity market participation patterns of LDC firms using micro data from the 2000 World Business Environment Survey. Both sets of empirical tests offer support for the general proposition that the stability of the domestic policy environment promotes successful equity market development over time.