How do institutions shape financial markets? The question is highly relevant in the context of the global financial crisis. This article reviews recent studies on the effect of institutions on financial markets, focusing on the “Lucas paradox” of capital inflows, the pricing of risk, and access to capital markets. There is strong empirical evidence to support the hypothesis that institutions, in various forms, are important determinants of financial market development.
Agca, Senay, and Oya Celasun, 2009, “How Does Public External Debt Affect Corporate Borrowing Costs In Emerging Markets?” IMF Working Paper 09/266.
Akitoby, Bernardin and Thomas Stratmann, 2008, “Fiscal Policy and Financial Markets,” Economic Journal, Vol. 118, No. 533, pp. 1971–85.
Akitoby, Bernardin, 2009, “The Value of Institutions for Financial Markets: Evidence from Emerging Markets,” IMF Working Paper 09/27.
Akitoby, Bernardin, forthcoming (a), “The Value of Institutions for Financial Markets,” Review of World Economics (formerly Weltwirtschaftliches Archiv).
Akitoby, Bernardin, forthcoming (b), “Fiscal Policy, Government Institutions, and Sovereign Creditworthiness,” in Sovereign Debt: From Safety to Default, ed. by Robert W. Kolb .
Alfaro, Laura, Sebnem Kalembi-Özcan, and Vadym Volosovych, 2008, “Why Doesn’t Capital Flow From Rich to Poor Countries?” Review of Economics and Statistics, Vol. 90. No. 2, pp. 347–68.
Bae, Kee-Hong, and Vidhan Goyal, 2009, “Creditor Rights, Contract Enforcement, and Costs of Loan Financing, Journal of Finance, Vol. 64, No. 2, pp. 823–60.
Baldacci, Emanuele, Sanjeev Gupta, and Amine Mati, 2008, “Is it (still) Mostly Fiscal? Determinants of Sovereign Spreads in Emerging Markets,” IMF Working Paper 08/259.
Das, S. Udaibir, Michael G. Papaioannou, and Christoph Trebesch, 2010, “Sovereign Default Risk and Private Sector Access to Capital in Emerging Markets,” IMF Working Paper 10/10.
Qian, Juan, and Philip Strahan, 2007, “How Laws and Institutions Shape Financial Contracts: The Case of Bank Loans,” Journal of Finance, Vol. 64, No. 6 pp. 2803–834.
Yartey, Charles A., 2008, “The Determinants of Stock Market Development in Emerging Economies: Is South Africa Different?” IMF Working Paper 08/32.