Emerging Capital Markets and Globalization

Emerging Capital
Markets and
Globalization
THE LATIN AMERICAN EXPERIENCE
Augusto de la Torre
Sergio L. Schmukler
STANFORD UNIVERSITY PRESSEmerging Capital Markets
and GlobalizationEmerging
Capital Markets
and Globalization
the latin american
experience
Augusto de la Torre and
Sergio L. Schmukler
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ISBN-10: 0-8213-6543-6 (World rights except North America)
ISBN-13: 978-0-8213-6544-1 (W
ISBN-13: 978-0-8047-5718-8 (Hardcover) (North America)
ISBN-13: 978-0-8047-5719-5 (Softcover)
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DOI: 10.1596/978-0-8213-6544-1
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Library of Congress Cataloging-in-Publication Data
Emerging capital markets and globalization : the Latin American experience / Augusto
de la Torre and Sergio L. Schmukler.
p. cm.
Includes bibliographical references and index.
ISBN-13: 978-0-8213-6544-1
ISBN-10: 0-8213-6543-6
ISBN-10: 0-8213-6544-4 (electronic)
1. Capital market--Latin America. I. Schmukler, Sergio L. II. Title.
HG5160.5.A3T675 2006
332’.0415098--dc22
2006028046Latin American
Development Forum Series
This series was created in 2003 to promote debate, disseminate informa-
tion and analysis, and convey the excitement and complexity of the most
topical issues in economic and social development in Latin America and
the Caribbean. It is sponsored by the Inter-American Development Bank,
the United Nations Economic Commission for Latin America and the
Caribbean, and the World Bank. The manuscripts chosen for publication
represent the highest quality in each institution’s research and activity out-
put and have been selected for their relevance to the academic community,
policy makers, researchers, and interested readers.
Advisory Committee Members
Inés Bustillo, Director, Washington Office, Economic Commission for
Latin America and the Caribbean, United Nations
Guillermo Calvo, Chief Economist, Inter-American Development Bank
José Luis Guasch, Regional Adviser, Latin America and the Caribbean
Region, World Bank
Stephen Haber, A. A. and Jeanne Welch Milligan Professor, Department
of Political Science, Stanford University; Peter and Helen Bing Senior
Fellow, the Hoover Institution
Eduardo Lora, Principal Adviser, Research Department, Inter-American
Development Bank
José Luis Machinea, Executive Secretary, Economic Commission for Latin
America and the Caribbean, United Nations
Guillermo E. Perry, Chief Economist, Latin America and the Caribbean
Region, World Bank
Luis Servén, Research Manager, Development Economics Vice Presidency,
World BankContents
Foreword xi
Acknowledgments xv
About the Authors xvii
Abbreviations xviii
1 Whither Capital Market Development? 1
Why Does Financial Development Matter? 5
Evolution and Globalization of Capital Markets 8
Main Developments in Domestic Capital Markets 13
Factors behind the Development and
Internationalization of Capital Markets 15
Policy Implications 19Conclusions 21
2 Developments in Capital Markets 25
The Global Context 26
Developing Countries in the Global Context 30
Developments in Domestic Capital Markets 43
Participation in International Capital Markets 72
Conclusions 80
Annex: When “Marking to Market” Becomes
“Marking to Model” 81
viiviii contents
3 Factors behind the Development and
Internationalization of Capital Markets 83
Factors behind Capital Market Development 85
Stock Market Internationalization 110
Domestic Capital Market Development in Latin America 129
Conclusions 131
4 Whither the Reform Agenda? 139
What Went Wrong and What to Do Next? 144
Back to Basics 152
Final Remarks 162
Annex: Regional Capital Markets Integration—
A Viable Alternative? 164
Endnotes 167
References 185
Index 203
Figures
2.1 Capital Market Development in Selected Developed
Countries, 1975–2004 27
2.2 Stock Market Development in Selected Developed
Countries, 1975–2003 30
2.3 Bond Market Development in Selected Developed
Countries, 1994–2004 31
2.4 Net Capital Flows to Developing Countries,
1970–2004 33
2.5 Private Capital Flows to Developing Countries,
1976–2004 34
2.6 Financial Liberalization Index, 1973–2001 36
2.7 Relation between Reforms and Capital Market
Development 39
2.8 Cumulative Amount Raised by Privatization in
Latin America, 1988–2003 41
2.9 Pension System Reform in Latin America 42
2.10 Capital Market Reforms in Latin America 43
2.11 Institutional Reforms in Latin America, 1984–2004 44
2.12 Capital Market Development in Latin America 46