Working Paper: NBER ID: w10576
Authors: Barry Eichengreen; Pipat Luengnaruemitchai
Abstract: Asia's underdeveloped bond markets and dependence on bank finance have been topics of concern since the crisis of 1997-8. In this paper we document that the slow development of Asian bond markets is a phenomenon with multiple dimensions. Larger country size, stronger institutions, less volatile exchange rates, and more competitive banking sectors tend to be positively associated with bond market capitalization. Asian countries' strong fiscal balances, while admirable on other grounds, have not been conducive to the growth of government bond markets. The results suggest that the region's structural characteristics and macroeconomic and financial policies account fully for differences in bond market development between Asia and the rest of the world. Once one controls for these characteristics and policies, in other words, there is no residual Asia effect.'
Keywords: bond markets; Asia; financial development; bank finance
JEL Codes: I20; J24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Larger country size (R12) | Bond market capitalization (G10) |
| Stronger institutions and better regulatory quality (O17) | Bond market development (G10) |
| Adherence to internationally recognized accounting standards (F30) | Bond market size (G10) |
| Strong fiscal balances (E62) | Growth of government bond markets (G15) |
| Competitive banking sectors (G21) | Bond market growth (G10) |
| Stable exchange rates (F31) | Bond market growth (G10) |
| Capital controls (F38) | Bond market growth (G10) |