Final Paper - Capital Market Development and Economic Growth

Final Paper - Capital Market Development and Economic...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
INTERNATIONAL CAPITAL MARKET DEVELOPMENT AND ECONOMIC GROWTH Blake Considine Annick Hiensch Albert Ho December 8, 2006 AEM 442 Emerging Markets Dr Ralph Christy 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Sound financial systems can contribute enormously to economic development around the world, and the flow of capital across international borders can confer enormous benefits. And yet as we have seen, there is the potential for massive accidents.” - Larry Summers Introduction For a developed country, an active and sophisticated financial market is usually a given. On the other hand, developing countries do not usually have the same financial architecture in place. The financial crises that rocked the globe since the 1990’s have borne many opposing views of international capital market development (CMD). Anecdotal evidence can support almost any position along the spectrum of possible policy options dealing with CMD, ranging from a complete halt to unadulterated support. This paper provides an analysis of the function of capital markets, their impact on efficiency and growth, some dangers associated with CMD and finally some policy guidelines to ensure that growth also translates into development. International capital market development is about finance. Considering national capital market development, financial institutions provide the essential service of increasing efficiency by improving transparency and allocation. However, there are questions as to whether capital market development is necessary for generating economic growth in the domestic markets. When this question is posed on an international scope, the issue becomes even more complex. Ostensibly, international financial services that are more developed will be better at allocating capital to its most efficient use, generating global economic growth. On the other hand, the kinds of capital that are pushed by financial markets may be undesirable. International financial efficiency may also undermine national objectives of full employment, stability and growth. 1 Finally, more developed capital markets also mean more international capital flows that can render countries more susceptible to major financial crises, characterized by both a currency and bank collapse. This can have real negative effects on the economic growth of the country where the crisis occurs. 1 Charles P. Kindleberger. The International Firm and the International Capital Market. Southern Economic Journal 1967-10 Vol 34 Issue 2 P 223-230 2
Background image of page 2
Finally, there is an important distinction to be made between economic growth and economic development. Even if economic growth does occur because of international capital market development, to whom are the benefits incurred? Some believe that “a rising tide lifts all boats”, so that an increase in economic growth will benefit everyone. Others believe that the wave of capital market liberalization may sweep away the most vulnerable. The policy options in this paper seek to address the negative aspects of international capital market development, keeping in mind that economic growth is not an end in itself,
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 13

Final Paper - Capital Market Development and Economic...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online