Infrastructure requirements have long played an important role in the development debate. Until recently these requirements referred to the need for improvements in roads, railways, electricity supply, telecommunications and the like. Lack of such infrastructure was seen as an important cause of a country's relative poverty. Investments in physical infrastructure seem not to have had the desired growth effects in developing countries, however. The search for the root cause of economic development has led the mainstream of economists to the system of rules for economic activity. The attention to rules and institutions became wide-spread only after the fall of communism, although Nobel prizes had been awarded to Friedrich Hayek and Gunnar Myrdahl in 1974, and Ronald Coase in 1983 for their contributions to institutional and political economics. These prices represented a recognition that institutional and political economics help explain important aspects of the organization of economic activity, but few economists took the additional step to analyze institutional factors as root causes of development and growth. An exception was Douglas North, who received the Nobel prize in 1993 after the fall communism and a renewed interest in institutional economics. This interest was to a large extent sparked by the formerly centrally planned economies' failure to start growing. Economic research began to focus on social institutions in general, and the legal system in particular, defining and securing property rights, enabling trade, and providing incentives for economic activity. Among social institutions the legal system is most directly subject to change, at least with respect to the letter of the law. Thus it is natural that policy-oriented economists would emphasize legal reform to enhance incentives leading to economic growth. Economic growth requires that old activities are phased out to make room for new ones, and that economic resources are reallocated from activities that are no longer profitable. This reallocation can occur within a variety of organizational structures, but the failure of projects and firms must be seen as an inherent aspect of growth process. The Asian crisis and a large number of more or less severe banking crises in a variety of countries during the last decades have led to questions about the ability of economic systems to deal with wide-spread failure of firms. Caprio and Klingebiel (1996) refer to the lack of procedures for banks to settle and recover claims on distressed firms as a cause of lingering and recurring banking crisis in many countries. Krugman (1994) noted before the crisis that investments kept flowing to projects of questionable value in many Asian countries. A mechanism for abandonment of non-profitable projects seemed to be missing. In the Eastern European transition economies state-owned enterprises or formerly state-owned large enterprises producing negative value could not be closed down in an orderly fas
{"title":"Infrastructure Requirements in the Area of Bankruptcy Law","authors":"C. Wihlborg, S. Gangopadhyay, Qaizar Hussain","doi":"10.1353/PFS.2001.0015","DOIUrl":"https://doi.org/10.1353/PFS.2001.0015","url":null,"abstract":"Infrastructure requirements have long played an important role in the development debate. Until recently these requirements referred to the need for improvements in roads, railways, electricity supply, telecommunications and the like. Lack of such infrastructure was seen as an important cause of a country's relative poverty. Investments in physical infrastructure seem not to have had the desired growth effects in developing countries, however. The search for the root cause of economic development has led the mainstream of economists to the system of rules for economic activity. The attention to rules and institutions became wide-spread only after the fall of communism, although Nobel prizes had been awarded to Friedrich Hayek and Gunnar Myrdahl in 1974, and Ronald Coase in 1983 for their contributions to institutional and political economics. These prices represented a recognition that institutional and political economics help explain important aspects of the organization of economic activity, but few economists took the additional step to analyze institutional factors as root causes of development and growth. An exception was Douglas North, who received the Nobel prize in 1993 after the fall communism and a renewed interest in institutional economics. This interest was to a large extent sparked by the formerly centrally planned economies' failure to start growing. Economic research began to focus on social institutions in general, and the legal system in particular, defining and securing property rights, enabling trade, and providing incentives for economic activity. Among social institutions the legal system is most directly subject to change, at least with respect to the letter of the law. Thus it is natural that policy-oriented economists would emphasize legal reform to enhance incentives leading to economic growth. Economic growth requires that old activities are phased out to make room for new ones, and that economic resources are reallocated from activities that are no longer profitable. This reallocation can occur within a variety of organizational structures, but the failure of projects and firms must be seen as an inherent aspect of growth process. The Asian crisis and a large number of more or less severe banking crises in a variety of countries during the last decades have led to questions about the ability of economic systems to deal with wide-spread failure of firms. Caprio and Klingebiel (1996) refer to the lack of procedures for banks to settle and recover claims on distressed firms as a cause of lingering and recurring banking crisis in many countries. Krugman (1994) noted before the crisis that investments kept flowing to projects of questionable value in many Asian countries. A mechanism for abandonment of non-profitable projects seemed to be missing. In the Eastern European transition economies state-owned enterprises or formerly state-owned large enterprises producing negative value could not be closed down in an orderly fas","PeriodicalId":124672,"journal":{"name":"Brookings-Wharton Papers on Financial Services","volume":"38 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2001-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133229994","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Comment and Discussion","authors":"M. Goldstein","doi":"10.1353/PFS.2001.0005","DOIUrl":"https://doi.org/10.1353/PFS.2001.0005","url":null,"abstract":"","PeriodicalId":124672,"journal":{"name":"Brookings-Wharton Papers on Financial Services","volume":"91 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2001-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114707942","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
cies has turned the so-called lesser-developed countries into emerging markets. In 1982 the thirty-two developing-country stock markets surveyed by the International Finance Corporation (IFC) had a market capitalization of $67 billion, representing about 2.5 percent of world market capitalization. By the end of 1999, the IFC had identified eighty-one emerging stock markets with total market capitalization exceeding $3 trillion, or 8.5 percent of world equity market capitalization. In 1999 the value of outstanding domestic debt securities trading in emerging markets exceeded $1.4 trillion, representing 4.7 percent of the global bond market and a several-fold increase over the total twenty years earlier. However, bank lending to emerging markets in 1999 totaled only $783.7 billion (12 percent of consolidated international claims of banks reporting to the Bank for International Settlements), a relatively small increase over the $517.6 billion (37 percent of the total) in claims held by banks in 1980. Many forces underlie these broad trends. The debt crisis of the early 1980s cooled bankers’ appetite for sovereign loans to developing nations. The financial crises in the second half of the 1990s (Mexico in 1995, Asia in 1997, and Russia in 1998, along with other hot spots) brought a fresh reminder of the perils of cross-border lending. In contrast, public financial markets for equity and debt securities were encouraged by marketoriented policies to permit private ownership of economic activities,
{"title":"The Importance of Emerging Capital Markets","authors":"Richard M. Levich","doi":"10.1353/PFS.2001.0011","DOIUrl":"https://doi.org/10.1353/PFS.2001.0011","url":null,"abstract":"cies has turned the so-called lesser-developed countries into emerging markets. In 1982 the thirty-two developing-country stock markets surveyed by the International Finance Corporation (IFC) had a market capitalization of $67 billion, representing about 2.5 percent of world market capitalization. By the end of 1999, the IFC had identified eighty-one emerging stock markets with total market capitalization exceeding $3 trillion, or 8.5 percent of world equity market capitalization. In 1999 the value of outstanding domestic debt securities trading in emerging markets exceeded $1.4 trillion, representing 4.7 percent of the global bond market and a several-fold increase over the total twenty years earlier. However, bank lending to emerging markets in 1999 totaled only $783.7 billion (12 percent of consolidated international claims of banks reporting to the Bank for International Settlements), a relatively small increase over the $517.6 billion (37 percent of the total) in claims held by banks in 1980. Many forces underlie these broad trends. The debt crisis of the early 1980s cooled bankers’ appetite for sovereign loans to developing nations. The financial crises in the second half of the 1990s (Mexico in 1995, Asia in 1997, and Russia in 1998, along with other hot spots) brought a fresh reminder of the perils of cross-border lending. In contrast, public financial markets for equity and debt securities were encouraged by marketoriented policies to permit private ownership of economic activities,","PeriodicalId":124672,"journal":{"name":"Brookings-Wharton Papers on Financial Services","volume":"72 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2001-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123176933","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Comment and Discussion","authors":"C. Leuz","doi":"10.1353/PFS.2001.0010","DOIUrl":"https://doi.org/10.1353/PFS.2001.0010","url":null,"abstract":"","PeriodicalId":124672,"journal":{"name":"Brookings-Wharton Papers on Financial Services","volume":"183 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2001-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133537112","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
informational networks makes strategic complementarities commonplace. These complementarities mean that coordinating the actions of competing institutions can manifestly increase their aggregate marginal return. However, increased coordination may or may not improve social welfare. Cooperative behavior can improve the industry’s marginal return in two very different ways: (1) by increasing the perceived quality of regulatee products by enhancing at low cost the confidence and convenience they offer to consumers or (2) by fostering cartel or subsidy arrangements that increase industry revenues at the expense of the welfare of parties in other sectors of the economy. Regulators cut through and reorient individual-producer preferences by adopting tandem strategies of rulemaking and enforcement. Their modus operandi is not to brutally force each regulatee to obey their dictates, but to restructure regulatees’ incentives in hopes of making compliance in their best interests. Cutting away pieces of others’ incentives is a delicate art that inevitably produces both predicted and unpredicted effects. Whether one is prepared to view all allegedly unpredicted effects as truly unintended depends on one’s theory of the regulatory process. Public interest theory views a nation’s regulators as faithful agents for society that single-mindedly pursue the common good. In this theory’s ideal world, financial regulators seek to
{"title":"Relevance and Need for International Regulatory Standards","authors":"E. Kane","doi":"10.1353/PFS.2001.0007","DOIUrl":"https://doi.org/10.1353/PFS.2001.0007","url":null,"abstract":"informational networks makes strategic complementarities commonplace. These complementarities mean that coordinating the actions of competing institutions can manifestly increase their aggregate marginal return. However, increased coordination may or may not improve social welfare. Cooperative behavior can improve the industry’s marginal return in two very different ways: (1) by increasing the perceived quality of regulatee products by enhancing at low cost the confidence and convenience they offer to consumers or (2) by fostering cartel or subsidy arrangements that increase industry revenues at the expense of the welfare of parties in other sectors of the economy. Regulators cut through and reorient individual-producer preferences by adopting tandem strategies of rulemaking and enforcement. Their modus operandi is not to brutally force each regulatee to obey their dictates, but to restructure regulatees’ incentives in hopes of making compliance in their best interests. Cutting away pieces of others’ incentives is a delicate art that inevitably produces both predicted and unpredicted effects. Whether one is prepared to view all allegedly unpredicted effects as truly unintended depends on one’s theory of the regulatory process. Public interest theory views a nation’s regulators as faithful agents for society that single-mindedly pursue the common good. In this theory’s ideal world, financial regulators seek to","PeriodicalId":124672,"journal":{"name":"Brookings-Wharton Papers on Financial Services","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2001-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134356508","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Comment and Discussion","authors":"Jenny Lanjouw","doi":"10.1353/PFS.2001.0009","DOIUrl":"https://doi.org/10.1353/PFS.2001.0009","url":null,"abstract":"","PeriodicalId":124672,"journal":{"name":"Brookings-Wharton Papers on Financial Services","volume":"117 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2001-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131781933","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
and development of any country. Raising capital and allocating financial resources efficiently are an integral part of economic development. It is now well established that securities markets are not casinos; rather they are essential for the growth and development of a country. Recent literature documents the direct linkage between capital market development and economic growth. It also documents the essential role of capital markets in improving corporate governance, disclosure standards, transparency in the marketplace, and accounting standards. The optimal amount of transparency and regulation leads to market credibility and results in market growth. A sound regulatory framework is the cornerstone of vibrant financial markets, but global competition is the force that is driving innovation in the markets. The creation of a global financial system has made the risks of contagion and systemic failure much more likely. The impact of the Asian crisis
{"title":"Regulatory Infrastructure Covering Financial Markets","authors":"Reena Aggarwal","doi":"10.1353/PFS.2001.0001","DOIUrl":"https://doi.org/10.1353/PFS.2001.0001","url":null,"abstract":"and development of any country. Raising capital and allocating financial resources efficiently are an integral part of economic development. It is now well established that securities markets are not casinos; rather they are essential for the growth and development of a country. Recent literature documents the direct linkage between capital market development and economic growth. It also documents the essential role of capital markets in improving corporate governance, disclosure standards, transparency in the marketplace, and accounting standards. The optimal amount of transparency and regulation leads to market credibility and results in market growth. A sound regulatory framework is the cornerstone of vibrant financial markets, but global competition is the force that is driving innovation in the markets. The creation of a global financial system has made the risks of contagion and systemic failure much more likely. The impact of the Asian crisis","PeriodicalId":124672,"journal":{"name":"Brookings-Wharton Papers on Financial Services","volume":"13 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2001-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133729823","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
an economically efficient system of public financial reporting (audited accounting information) and disclosure (non-accounting information). Financial reporting and disclosure are complementary means of ameliorating information asymmetry between managers and parties contracting with their firm, including shareholders, lenders, suppliers, customers, and employees. The efficiency of a country’s financial reporting and disclosure system therefore is crucial to its development of economically efficient public corporations and public securities markets as well as to the development of its economy. A skeptical view of making sudden changes to reporting and disclosure systems is adopted, due to the economic, political, legal, and institutional complexity involved in effecting actual change. A particularly skeptical view is reserved for simply mandating new accounting standards for public financial reporting. This amounts to little more than “window dressing,” unless it is accompanied by wholesale revision of the infrastructure that determines the financial reporting incentives of managers and auditors. If forced to nominate a single place from which to
{"title":"Infrastructure Requirements for an Economically Efficient System of Public Financial Reporting and Disclosure","authors":"R. Ball","doi":"10.1353/PFS.2001.0002","DOIUrl":"https://doi.org/10.1353/PFS.2001.0002","url":null,"abstract":"an economically efficient system of public financial reporting (audited accounting information) and disclosure (non-accounting information). Financial reporting and disclosure are complementary means of ameliorating information asymmetry between managers and parties contracting with their firm, including shareholders, lenders, suppliers, customers, and employees. The efficiency of a country’s financial reporting and disclosure system therefore is crucial to its development of economically efficient public corporations and public securities markets as well as to the development of its economy. A skeptical view of making sudden changes to reporting and disclosure systems is adopted, due to the economic, political, legal, and institutional complexity involved in effecting actual change. A particularly skeptical view is reserved for simply mandating new accounting standards for public financial reporting. This amounts to little more than “window dressing,” unless it is accompanied by wholesale revision of the infrastructure that determines the financial reporting incentives of managers and auditors. If forced to nominate a single place from which to","PeriodicalId":124672,"journal":{"name":"Brookings-Wharton Papers on Financial Services","volume":"49 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2001-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133585509","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Comment and Discussion","authors":"G. Kaufman","doi":"10.1353/PFS.2001.0008","DOIUrl":"https://doi.org/10.1353/PFS.2001.0008","url":null,"abstract":"","PeriodicalId":124672,"journal":{"name":"Brookings-Wharton Papers on Financial Services","volume":"31 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2001-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132650521","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
awakened the world to the importance of a sound financial system for economic stability. Each of the countries involved in the crisis had banks that loaned too freely, too often in foreign currencies, and too often to companies owned by bank shareholders. Furthermore, capital markets in each of the countries were poorly developed, accounting and disclosure standards were weak, bankruptcy systems were poor or effectively nonexistent, and little protection was afforded to minority shareholders. All of this is now conventional wisdom, although how essential it is for emerging-market countries generally to move their financial infrastructure in Western directions remains hotly disputed. Skeptics point to the rapid growth of the Asian economies before the 1997 crisis and assert that the characteristics of what is now called “crony capitalism” were present throughout this period, apparently without negative consequences. Advocates of reform counter that, however impressive the previous economic track records may have been, if emerging-market countries want to be integrated into the international financial system, they will have to upgrade their legal infrastructure to something akin to Western standards or else face the kind of punishment meted out to the Asian financial markets. If the latter view is correct—and we believe it is—then some countries may be tempted to say that they do not want to pay the price of joining the global financial marketplace. In fact, few countries have chosen this
{"title":"Editors' Summary","authors":"Robert E. Litan, R. Herring","doi":"10.1353/pfs.2001.0012","DOIUrl":"https://doi.org/10.1353/pfs.2001.0012","url":null,"abstract":"awakened the world to the importance of a sound financial system for economic stability. Each of the countries involved in the crisis had banks that loaned too freely, too often in foreign currencies, and too often to companies owned by bank shareholders. Furthermore, capital markets in each of the countries were poorly developed, accounting and disclosure standards were weak, bankruptcy systems were poor or effectively nonexistent, and little protection was afforded to minority shareholders. All of this is now conventional wisdom, although how essential it is for emerging-market countries generally to move their financial infrastructure in Western directions remains hotly disputed. Skeptics point to the rapid growth of the Asian economies before the 1997 crisis and assert that the characteristics of what is now called “crony capitalism” were present throughout this period, apparently without negative consequences. Advocates of reform counter that, however impressive the previous economic track records may have been, if emerging-market countries want to be integrated into the international financial system, they will have to upgrade their legal infrastructure to something akin to Western standards or else face the kind of punishment meted out to the Asian financial markets. If the latter view is correct—and we believe it is—then some countries may be tempted to say that they do not want to pay the price of joining the global financial marketplace. In fact, few countries have chosen this","PeriodicalId":124672,"journal":{"name":"Brookings-Wharton Papers on Financial Services","volume":"1998 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2001-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123551511","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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