There is much debate in both developed and developing countries about what kinds of financial institutions and markets best serve economic growth. To what extent can the superior performance of Japanese and German economies be attributed to their market-based system (with a focus on short-term gains)? Prominent in current debates about the competitiveness of industrial nations are issues of corporate financial structure and financial market organization. Drawing on recent experiences in India and Korea, the authors consider key issues that arise in connection with the development of equity markets in developing countries. Under what conditions does it make sense to encourage the development of equity markets? Is a functioning equity market a prerequisite for the liberalization of the banking system? Is it useful to think in terms of an optimal debt/equity mix for a developing economy, or for a corporation in a developing economy? What is the appropriate regulatory regime for a developing country's securities market? Without effective regulation, international investors will not have the confidence to commit the resources to developing country markets. Good managment skills are scarce in developing countries. How can matters be arranged to make optimal use of those resources? The stock market's role in effecting changes in corporate governance could be enormously helpful to economic development.

Stock markets in developing countries : key issues and a research agenda

Literature on financial market liberalization focuses heavily on state activity in allocating preferential credit. I consider state activity in promoting nascent equity markets by asking why a state would create and promote a market in which the transaction costs are high, the potential rate of return is low, and firms are reluctant to list shares. I examine the case of the West African regional stock exchange and propose that the central bank for the West African Monetary Union created it to mediate the relationship between this region and the world economy. I propose that states and domestic markets act as complements rather than as rivals in some instances of bourse creation. Moreover, bourses in developing economies present a different set of relationships among states, public and private lending authorities, and market participants than their counterparts in more developed financial environments. This illuminates a need for further research in this area.

https://www.jstor.org/stable/pdfplus/3078662.pdf

Architecture of Equity Markets: The Abidjan Regional Bourse

In this paper we analyze the achievement of the countries with regard to financial liberalization. Financial liberalization brought many new challenges many of which remain as reforms continue to be implemented. These challenges relate to the way in which monetary policy is formulated and implemented. Reforms in the financial system and in the conduct of monetary policy were part of the overall adjustment process. The experiences of the three countries in their structural and financial adjustment efforts starting from 1990 provide a good example of the successful transformation of an economy from a heavily regulated to a market oriented one. The process has not yet completed for these three countries. Their success in implementing adjustment programs should be viewed as a foundation and the authorities should continue to precede reforms in order to achieve further improvements.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1158173_code1064584.pdf?abstractid=1158173&mirid=1

Financial Liberalization in the Middle East and North Africa: A Case Study of Experiences in Egypt, Jordan and Tunisia

The domestic capital markets of developing countries are typically subject to serious inefficiencies. This article shows how these inefficiencies can be eliminated without necessarily provoking an adjustment crisis and indicates the measures on which emphasis must be placed in the context of structural adjustment assistance in order to mobilise a large volume of savings and achieve a better allocation of resources.

/pdf/liberalisation-of-the-capital-markets-in-developing-27gyokh6bq.pdf

Liberalisation of the capital markets in developing countries

In 1954, the Nairobi Stock Exchange (NSE) was constituted as a voluntary association of stockbrokers registered under the Societies Act. The business of dealing in shares was then confined to the resident European community, since Africans and Asians were not permitted to trade in securities until after the attainment of independence. This marked an important milestone in the effort toward the development of a functioning capital market for the mobilization and allocation of long-term capital to the private sector. As at December 2002, 53 companies were listed at the NSE, nine of which were privatized through initial public offer by the government. The state of the capital markets will restrict both the pace of privatization, in terms of how many enterprises could be put up for sale, and the methods available for broadening ownership. This limitation has been of great concern to all governments, and a lot of effort is going into capital market development alongside financial sector reforms. The scope and pace for further divesting government-owned assets and shares in the large enterprises will depend on progress in capital market development. A synergy exists between privatization and capital markets development, because the sale of state assets provides a tremendous impetus to stock market activity. Quite apart from freeing government resources for re-deployment to the poor, privatization has positive overall welfare effects. This study sought to find out if the government privatization program through public floatation improved the pace of privatization, in terms of how many enterprises could be put up for sale. The study also sought to establish if the Privatization Implementation Unit and Parastatal Reform and Privatization Committee, should still pursue the objectives of the widening of participation by the people in the ownership and management of these parastatals as well as developing the local capital market, in their privatization programs and to what extent has the privatization programme contributed to the Nairobi Stock Exchange capitalization and the quantity of share issues.

Andrea Calamanti

Papers

The securities market and underdevelopment : the stock exchange in the Ivory Coast, Morocco, Tunisia