Chapter 1 Introductory aspects

Introduction In recent years, there has been increasing interest in the economics literature in the role of Financial intermediaries in promoting economic growth. Recent papers have shown that Improved financial market development is associated with growth, using a variety of methodologies and datasets.1 One of the basic explanations for this pattern is that the financial sector serves to reallocate funds from those with an excess of capital, given their investment opportunities, to those with a shortage of funds relative to opportunities!. "hus, an economy with well#developed financial institutions will be better able to allocate resources to pro$ects that yield the highest returns. "his allocative role of financial institutions in promoting development was the focus of Ra$an and %ingales 1&&'!, who found that industrial sectors with a greater need for external finance develop disproportionately faster in countries with more developed financial markets.

Chapter 2 Theoretical aspects

Theories of Trade Credit Provision "here are numerous theories that provide explanations for the provision of credit by suppliers. "hese theories often pertain to particular aspects of market structure and(or product characteristics, and suggest that certain industries may have a greater ability to utili)e trade credit than others. *ince we will be using an industry#specific measure of trade credit intensiveness, we will begin by outlining these basic theories of trade credit provision, with particular reference to industry specificity. +ost theories of trade credit provision fall into one of the following categories, 1! comparative advantage in li-uidation, .! price discrimination by suppliers, /!warranty for product -uality, and 0! customi)ed products. First, several authors have suggested that credit provision will be more likely in circumstances where there is easier resale of the product being sold, since this will allow the seller to sei)e and resell its product if default occurs see, for example, +ian and *mith 1&&.! and Frank and +aksimovic 1&&'!!. 1ase of resale will clearly be related to a number of characteristics of these inputs, depreciation2 firm#specificity2 inventory stocks. 3n implication of this theory is that industries that utili)e undifferentiated raw materials, and that are re-uired to hold large amounts of raw materials inventories relative to finished goods inventories! will be better able to obtain trade credit financing where necessary."he second theory involves price discrimination as a motive for trade credit provision by suppliers. 4rennan, +aksimovic and %e)hner 1&''! present this argument, claiming that low competition among suppliers in an input market may create incentives to discriminate among cash and credit customers. "his would happen if, first, the demand elasticity or the reservation price! of credit customers is lower than that of cash customers, and second, if there is adverse selection in the credit

market. In addition, trade credit could be used as a strategic instrument in the oligopolistic supplier market. 5epending on the degree of competition in the input market, some industries may therefore be more prone to price discrimination by their suppliers. If some industries are 6naturally7 concentrated e.g., because of high fixed costs!, and use of inputs are reasonably similar within a given industry, access to trade credit from upstream firms will also be similar. In support of this, an early study by 8ryor 1&9.! finds that the rank ordering of industrial concentration is highly correlated among 1. developed countries. 3nother theory of credit provision comes from a model in a recent paper by :unat .;;;!. In this paper, supplier#customer relationships that have tailor made products, learning by doing, or other sources of sunk costs, will generate a surplus that will increase with the length of the relationship. "his will increase amount of credit that suppliers are willing to provide, since it ties firms to particular suppliers, thereby increasing the scope for punishment of nonpayment. *imilar to the <inspection< discussion outlined above, industries with more complex input needs will better fit this argument. Finally, of particular relevance for this paper, *mith 1&'9! provides a theory of credit provision that spans several categories, using arguments related to product -uality guarantees, market power and sunk costs to generate a model of trade credit terms. *he argues that credit terms will be uniform within industries and differ across industries. "he empirical support for this model is presented in a recent paper by =g, *mith and *mith 1&&&!, who document wide variation in credit terms across industries but little variation within industries. "his evidence lends some credibility to our assumption about the industry#specific use of trade credit. >e provide further evidence in the 5ata section below, in support of our claim that there is an industry#specific element to trade credit intensiveness. >e have laid out, in this section, a number of theories of trade credit provision that may have industry#specific components to them. It is worth noting that the purpose of this paper is not to assess which of these theories are primarily responsible for differences across industries in reliance on trade credit. Rather, for us, it is sufficient to note that there are many reasons to believe that such differences should exist, to document that such differences do in fact exist in our data, and to show that these differences are consistent and persist over time. One additional concern related to the theory of credit provision is that many of the enforcement or information problems that may prevent the establishment of financial institutions may potentially affect the ability of firms to obtain trade credit financing. In particular, where rule of law 5

is weak, firms will not have legal recourse in the case of credit nonpayment. "his is of concern, since we are claiming that trade credit exists as a substitute for bank financing where the latter is scarce. >e will argue, however, that even though weak creditor protection and imperfect information will affect both formal intermediaries and trade credit providers, trade creditors may mitigate these problems better than formal lenders for several reasons. "hese include advantages in 1! information ac-uisition, .! the renegotiation(li-uidation process, and /! enforcement. "he first set of advantages stems from the fact that suppliers are thought to have a cost advantage over banks in ac-uisition of information about the financial health of the buyers. For example, +ian and *mith 1&&.! argue that monitoring of credit#-uality can occur as a byproduct of selling if a manufacturer7s sales representatives regularly visit the borrower. 4iais and ?ollier 1&&/! assume that suppliers have different signals about the customer7s probability of default than do banks, and furthermore, that the bank will extend more credit if it observes the offering of the trade credit by supplier. 3lternatively, *mith 1&'9! argues that the choice of the trade credit terms made can be used as a screening device to elicit information about buyers7 creditworthiness. "he other arguments follow directly from the preceding discussion, because of advantages in the li-uidation process, described above, the supplier would lend to a customer even if the bank would not. Finally, sunk costs and repeated interaction as in the model by :unat .;;;! discussed above! may generate surplus split among the supplier and the customer and this surplus will give supplier an advantage over the bank lending in enforcement."hese models taken together provide theoretical grounds for arguing that in the situations when bank credit is unavailable, trade credit could serve as a weak! substitute.

5eterminants of the "rade :redit :hannel

>hat are the characteristics of trade credit@ >hy do Arms use trade credit and what is the implication of that for the economy@ 1venthough a Arst attempt to address these -uestions dates back to +elt)er 1&B;!, it was until recent that more and more researchers showed interest in the topic. 1specially since Ra$an and %ingales 1&&C! documented the widespread use of trade credit, this literature took a ight. "rade credit can be thought of as a short#term loan provided by suppliers to their customers upon purchase of their products. It is automatically created when the customers

delay payment of their bills to the suppliers. "rade credit is typically more expensive than bank credit, especially because customers do not use the early payment discount 8etersen and Ra$an, 1&&9!.1 +ore recently, however, +iwa and Ramseyer .;;'! estimate that the price of trade credit lies much more in range with the rates that banks would charge. 3ccording to ?uariglia and +ateut .;;B! , 19.0D of total assets and BB.0D of short
13

common form of trade credit is E.(1; net /;F. E.(1;F means that the buyer gets a .D discount for payment within 1; days. E=et /;F means that, in case the buyer does not take the . percent discount within 1; days, the full payment is due within /; days. "he fact that the buyer in some cases prefers to delay payment an extra .; days rather than to take the .D discount, deAnes an implicit annual interest rate of 0/.&D 8etersen and Ra$an, 1&&92 =g et al., 1&&&!.

term debt of B;& GH -uoted Arms between 1&'. and .;;; was funded by trade credit. *imilarly, 4erger and Gdell 1&&'! show that trade credit accounts for almost 1BD of total assets of small G* businesses in 1&&/. On the other hand, Ra$an and %ingales 1&&C! And that in 1&&1, trade receivables amounted up to 19.'D of total assets for G* Arms, ..D for GH Arms, and more than .CD for Italy, France and ?ermany. 5ue to the signiAcant role that trade payables and trade receivables play on the Arm<s balance sheet, many authors have investigated which factors drive their magnitude. 4oth trade credit payables and receivables have been found to be increasing in Arm age and in Arm si)e. "his follows partly because age and si)e are proxies for Anancial constraints. Older and larger Arms take more trade payables because they are more credit worthy and therefore get more credit oAered from their suppliers. 3lso, older Arms have built up solid relations with suppliers, which increases the likelihood that these suppliers will oAer the Arm the possibility to buy the goods on credit. On the other hand, as Arms get older, the better their relationship with certain customers will be, which might stimulate them to oAer more trade receivables to the these customers. +oreover, because older and larger are more credit worthy, they are expected to have better access to external Anance which enables them to extend more trade receivables. 8etersen and Ra$an, 1&&92 :uInat, .;;9! 4esides age and si)e, also the capacity to generate internal funds inuences the use of trade payables and receivables. 8roAtable Arms appear to use less trade credit payables than unproAtable Arms. 3ccording to Jove et al. .;;9!, this is because their need for external Anance is lower thanks to the high generation of internal funds. 3pplying the

same logic, 4iais and ?ollier 1&&9! argue that proAtability is positively related to trade credit receivables since proAtable Arms should have a higher capacity to grant funds to their customers. Kowever, many authors have found a pu))ling negative relationship between proAtability and trade receivables. 4urkart and 1llingsen .;;0! do not And this negative relation surprising at all. In their theory, more proAtable Arms have a high expected return on investment, implying that these Arms will be better oA with every euro invested and therefore these Arms will be more reluctant to divert a euro into receivables. Finally, Lan Koren .;;9! and Fabbri and Hlapper .;;'! argue that the provision of trade credit is related to market power, which, in turn, is likely to depend on product and sectoral characteristics. 3 customer who possesses strong market power can increase his customer surplus by demanding to buy the goods on credit. 1ven suppliers that are credit constrained will extend trade credit when their customers have market power. 3ccording

C
to Lan Koren .;;9! the relationship between customer market power and trade credit that the customer receives is stronger when the supplier is more risky and when the Arms interact in a country with a poorly developed Anancial sector or a low enforceability due to a weak legal system.

... "he "rade :redit :hannel and Firm 8erformance

In a model without bank loans, 4ougheas et al. .;;&! show that, for a given li-uidity, an increase in production will re-uire an increase in trade credit. 3 higher production is associated with higher production costs which, for a given unsuAcient! amount of li-uidity, implies that the Arm will need to take more trade credit. *o trade credit works as alternative means to Anance production. 3lso :uInat .;;9! argues that fast growing Arms may Anance themselves with trade credit when other types of Anance are not suAciently available. 3ccording to Fisman and Jove .;;/! this reasoning extends to the overall development of the Anancial sector. "hey And evidence that industries that use more trade credit, relatively grow faster in countries with poorly developed Anancial markets. +ore empirical support of a link between trade credit and Arm performance comes from 4oissay and ?ropp .;;9!, who show that Arms that are confronted with a li-uidity shortage shock!, try to overcome this distressed situation by passing on one fourth of the shock to their suppliers by taking more trade credit. 4esides taking credit from their suppliers, Arms simultaneously oAer a lot of trade credit to their customers. In fact, most Arms have higher amounts of trade credit receivable than trade credit payable *ee Figures C and B in the 3ppendix!. Firms use trade receivables as a tool for price discrimination +elt)er, 1&B;!. >hen it is not possible to

discriminate on the basis of price, for instance due to legal restrictions, Arms can choose to sell more on credit as a competitive tool. 8etersen and Ra$an 1&&9! showed that Arms with high proAt margins, i.e. those that would beneAt most from making additional sales via price discrimination, indeed have higher accounts receivable. +ore recent, 4ougheas et al. .;;&! argue that accounts receivable are important for the performance of inventory management. For a given aggregate demand, higher production increases inventories in their model2 and minimi)ation of the inventory! costs implies that Arms will increase trade credit receivables oAered in order to sell more and conse-uently hold less inventories. Furthermore, accounts receivable are proven to be a useful tool when there exists considerable uncertainty about the -uality of a Arm<s product among potential customers.

B
"he Arm can increase its sales by allowing delayed payments, such that the customer can witness the -uality before paying =g et al., 1&&&2 5eloof and Megers, 1&&B!. Finally, Arms provide more trade credit to customers that are in temporary distress. "his also enhances their sales, since otherwise the distressed customer would not be able to buy the goods. Firms will however only oAer additional trade credit when they believe there is a future surplus of having a longlasting relation with that customer :uInat, .;;9!. 3lthough the above stated theories of trade credit receivables are positively related to Arm performance, they seem to be in contrast with the idea that trade credit payables are used to Anance the Arm. On Arst sight, one could argue that each euro of trade credit payable cannot be used to Anance the activities when the Arm provides that same euro as trade credit receivable to a customer. 3ctually, according to 4urkart and 1llingsen .;;0!, the main reason why this is not so and probably also why Arms are willing to oAer so much trade receivables, is because receivables can be collateralised. 4anks are willing to provide loans once the receivables are pledged as collateral. "his is especially the case when Arms insure their receivables against the probability that the customer defaults.

The theoretical case for a bank-based system

4esides debates concerning the role of financial development in economic growth, financial economists have debated the comparative importance of bank#based and market#based financial systems for over a century ?oldsmith, 1&B&2 4oot and "hakor, 1&&92 3llen and ?ale,.;;;2 5emirguc#Hunt and Jevine, .;;1c!. 3s discussed, financial intermediaries can improve the i! ac-uisition of information on firms, ii! intensity with which creditors exert corporate control, iii! provision of risk#reducing arrangements, iv! pooling of capital, and v! ease of making transactions. "hese are arguments in favor of well#developed banks. "hey are not reasons for favoring a bank#based financial system. Rather than simply noting the growth#enhancing role of banks, the case for a bank#based system derives from a criti-ue of the role of markets in providing financial functions. In terms of ac-uiring information about firms, *tiglit) 1&'C! emphasi)es the free#rider problem inherent in atomistic markets. *ince well#developed markets -uickly reveal information to investors at large, this dissuades individual investors from devoting resources toward researching firms. "hus, greater market development, in lieu of bank development, may actually impede incentives for identifying innovative pro$ects that foster growth.1; 4anks can mitigate the potential disincentives from efficient markets by privati)ing the information they ac-uire and by forming long#run relationships with firms ?erschenkron, 1&B.2 4oot, ?reenbaum, and "hakor, 1&&/!. 4anks can make investments without revealing their decisions immediately in public markets and this creates incentives for them to research firms, managers, and market conditions with positive ramifications on resource allocation and growth. Furthermore, Ra$an Gsing examples from the G.*. in the 1'th :entury, >right .;;., p./;#/.! shows how securities market participants tended to free#ride off of the information collected by banks in making credit decisions and %ingales 1&&&! emphasi)e that powerful banks with close ties to firms may be more effective at exerting pressure on firms to re#pay their debts than atomistic markets.On corporate governance, a large literature stresses that markets do not effectively monitor managers *hleifer and Lishny, 1&&9!. First, takeovers may not be an effective corporate control device because insiders have better information than outsiders. "his informational asymmetry mitigates the takeover threat as a corporate governance mechanism since ill#informed outsiders will outbid relatively well#informed insiders for control of firms only when they pay too much *tiglit), 1&'C!. *econd, some argue that the takeover threat as a corporate control device also suffers from the free#rider problem. 10

If an outsider expends lots of resources obtaining information, other market participants will observe the results of this research when the outsider bids for shares of the firm. "his will induce others to bid for shares, so that the price rises. "hus, the original outsider who expended resources obtaining information must pay a higher price for the firm than it would have paid if Nfree#ridingO firms could not bid for shares in a li-uid e-uity market. "he rapid public dissemination of costly information reduces incentives for obtaining information, making effective takeover bids, and wielding corporate control ?rossman and Kart, 1&';!.

"hird, existing managers often take actions Ppoison pills P that deter takeovers and thereby weaken the market as an effective disciplining device 5e3ngelo and Rice, 1&'/!. "here is some evidence that, in the Gnited *tates, the legal system hinders takeovers and grants considerable power to management. Fourth, although in theory shareholder control management through boards of directors, an incestuous relationship may blossom between boards of directors and management Mensen, 1&&/!. +embers of a board en$oy their lucrative fees and owe those fees to nomination by management. "hus, boards are more likely to approve golden parachutes to managers and poison pills that reduce the attractiveness of takeover. "his incestuous link may further reduce the effectiveness of the market as a vehicle for exerting corporate control 3llen and ?ale, .;;;!. :hakraborty and Ray .;;0! examine bank#based and market#based financial systems in an endogenous growth model, concluding that banks can partially resolve the tendency for insiders to exploit the private benefits of control. "he li-uidity of stock markets can also adversely influence resource allocation. Ji-uid e-uity markets may facilitate takeovers that while profiting the raiders may actually be socially harmful *hleifer and *ummers, 1&''!. +oreover, li-uidity may encourage a myopic investor climate. In li-uid markets, investor can inexpensively sell their shares, so that they have fewer incentives to undertake careful P and expensive P corporate governance 4hide, 1&&/!.

Evidence on Finance and Growth

3 substantial body of empirical work on finance and growth assesses the impact of the operation of the financial system on economic growth, whether the impact is economically large, and whether certain components of the 11

financial system, e.g., banks and stock markets, play a particularly important role in fostering growth at certain stages of economic development. "his section is organi)ed around econometric approaches to examining the relationship between finance and growth. "hus, the first subsection discusses cross#country studies of growth and finance. "he second subsection presents evidence from panel studies, pure time#series investigations, and country case#studies. "he third subsection examines industry and firm level analyses that provide direct empirical evidence on the mechanisms linking finance and growth. "hen, I summari)e existing work on the relationship between financial structures P the degree to which an economy is bank#based or market#based P and economic growth. Finally, I mention recent research on whether financial development influences income distribution and poverty. "he organi)ation of the empirical evidence advertises an important weakness in the finance and growth literature, there is fre-uently an insufficiently precise link between theory and measurement. "heory focuses on particular functions provided by the financial sector P producing information, exerting corporate governance, facilitating risk management, pooling savings, and easing exchange P and how these influence resource allocation decisions and economic growth. "hus, I would prefer to organi)e the empirical section around studies that precisely measure each of the functions stressed by theory. *imilarly, while empirical studies focus on measures of the si)e of banks or stock markets, 8etersen and Ra$an 1&&9!, 5emirguc#Hunt and +aksimovic .;;1!, and Fisman and Jove .;;/! show that firms fre-uently act as financial intermediaries in providing trade credit to related firms. "his source of financial intermediation may be very important, especially in countries with regulatory restrictions on financial intermediaries and in countries with undeveloped legal systems that do not effectively support formal financial development. "his further advertises the sub#optimal connection between theory and measurement in the finance and growth literature. >hile fully recogni)ing this problem, many of the biggest advances in empirical studies of finance and growth have been methodological. "hus, I organi)e the discussion around econometric approaches. >hile serious improvements have been made in measuring financial development, which I discuss below, future research that more concretely links the concepts from theory with the data will substantively improve our understanding of the finance and growth link.

12

:hapter / 8ractical aspects

13

Bond Market is a place or incidence of transaction in which any kind of bonds changes hands. References to the "bond market" usually refer to the government bond market, because of its size, liquidity, lack of credit risk and, therefore, sensitivity to interest rates. Because of the inverse relationship between bond valuation and interest rates, the bond market is often used to indicate changes in interest rates or the shape of the yield curve.

14

Bond markets in most countries remain decentralized and lack common e changes like stock, future and commodity markets. !his has occurred, in part, because no two bond issues are e actly alike, and the number of different securities outstanding is far larger. !he "ecurities #ndustry and $inancial Markets %ssociation classifies the broader bond market into five specific bond markets. & 'orporate & (overnment ) %gency & Municipal & Mortgage Backed, %sset Backed, and 'ollateralized *ebt +bligation & $unding Bond markets link issuers having long,term financing needs with investors willing to place funds in long,term, interest,bearing security. Bangladesh has both the issuers and the investors in place but it still has not been able to link them effectively through a bond market. !he positive effect of developing a domestic bond market on the economy is well,known. +n the one hand, bond markets are essential for a country to enter a sustained phase of development driven by market,based capital allocation and increased avenues for raising debt capital. +n the other hand, the central position occupied by domestic bond markets in markedly increasing the resilience of a country-s financial system and insulating it against e ternal shocks, contagion and reduction of access to international capital markets is established. 'apital markets are essentially about matching the needs of investors with those that need capital for development. Bangladesh has no shortage of both such parties, a young and dynamic population that increasingly wants, and is able to, make provision for lifetime events, to save for children-s education, for the possibility of ill health and ultimately for old age and retirement. +n the other side of the equation, Bangladesh has a pressing need for investment resources to bolster its stretched infrastructure resources, to build more power stations, bridges, ports and gas,pipelines to empower the people in the development of enterprise and the creation of .obs. *ebt markets are an e tremely effective mechanism for matching the long term needs of savers with those of entrepreneurs. !erm capital is a precious commodity and it has been a frustration to see the process of long term savings, such as provident funds and life insurance contracts, being invested in short term instruments such as bank deposits, a process

15

we call /reverse term transformation- but we could equally call it 0reverse alchemy1 in which the gold of term capital is turned into the lead of short term liabilities. %s a development institution it is our goal to establish sustainable capacity. %s Bangladesh has led the world in its development of the microfinance industry, we have impressed others with our ability to mobilize funds for productive purposes at the community level in the villages. 2hat we need to see now is a similar degree of success at the institutional level in terms of mobilizing resources for infrastructure and other uses of long term funds. #t is much more useful that !aka funds are mobilized to fund pro.ects whose sole revenue source will be in !aka. Bangladesh should play a larger role in mobilizing its own capital resources and reducing the dependency upon donor institutions such as 2orld Bank, #M$ and %*B etc. Bond markets in most countries are built on the same basic elements3 a number of issuers with long,term financing needs, investors with a need to place savings or other liquid funds in interest,bearing securities, intermediaries that bring together investors and issuers, and an infrastructure that provides a conducive environment for securities transactions, ensures legal title to securities and settlement of transactions, and provides price discovery information. !he regulatory regime provides the basic framework for bond markets and indeed, for capital markets in general. 4fficient bond markets are characterized by a competitive market structure, low transaction costs, low levels of fragmentation, a robust and safe market infrastructure, and a high level of heterogeneity among market participants. %n important element of a domestic bond market is the government bond market. *evelopment of a government bond market provides a number of important benefits if the pre, requisites to a sound development are in place. %t the macroeconomic policy level, government securities market provides an avenue for domestic funding of budget deficits and avoids a build,up of foreign currency,denominated debt. % government securities market can also strengthen the transmission and implementation of monetary policy, including the achievement of monetary targets or inflation ob.ectives, and can enable the use of market, based indirect monetary policy instruments. !he e istence of such a market not only can enable authorities to smooth consumption and investment e penditures in response to shocks, but if coupled with sound debt management, can also help governments reduce their e posure to interest rate risk 5 a situation that is looming large in the 6ational "avings 'ertificates market, currency, and other financial risks. $inally, a shift toward market,oriented funding of

16

government budget deficits will reduce debt,service costs over the medium to long term through development of a deep and liquid market for government securities. !he prerequisites for establishing an efficient government domestic currency securities market include a credible and stable government7 sound fiscal and monetary policies7 effective legal, ta , and regulatory infrastructure7 smooth and secure settlement arrangements7 and a liberalized financial system with competing intermediaries. "ince pension and life insurance reform helps in the development of government securities market, starting the process of pension and insurance reform now might be prudent because of the time it takes to feel the positive impact of such reforms on the capital market. !he current emphasis on local,currency bond markets stems mainly from their risk,management benefits, as highlighted by the %sia and the !equila crises. #ssuing bonds can reduce the types of interest rate, foreign e change, and refunding e posures that created those crises and can help ensure that emerging market borrowers have more shock absorbers8more tools8to limit the impact of those e posures. $oreign investment is clearly a plus for economic development but it does create certain risks. "ince financial sector crises will never be eliminated, and, at least for many years to come, flows into emerging markets will be large in relation to the markets in which they are investing, any rapid outflow will create serious problems for the borrowing country. 4merging market countries must find ways to manage the risks, and hence benefit from international capital flows. !hey need to be able to reduce e posures to foreign,currency borrowing and also absorb the associated shocks and volatility, so that small problems will not escalate into broadly based social catastrophes, harming people who were in no way directly involved in the markets. 9ocal,currency bonds dampen the effect of crises created by international capital flows by locking in interest rates and local,currency funding. !his allows borrowers to hold on to their funds and positions and work their way through a crisis. But, as happened in %sia, many borrowers want to rely on short,term, foreign,currency funding because when their economy and local currency is strong, such borrowing creates a double benefit to their net worth3 the borrower-s liabilities fall while its assets and revenues rise. !he flip side is that when times turn bad, borrowers get a double hit on their net worth3 liabilities rise and assets fall, causing strains and in some cases defaults. !he solution to this problem is to use funding structures

17

that have a neutral effect on net worth, as in the case of bonds. !he difficulty lies in convincing borrowers that good times may turn bad, and in getting them to incur the potential opportunity cost from locking in stable funds and rates. 9ocal bond markets also support ma.or trends that stem from economic and financial sector growth. $or issuers, infrastructure development is creating demands throughout %sia and other parts of the world for large,scale, longer,term funds that banks cannot often provide. :rivatization, securitization ;particularly for housing finance<, and decentralization of governments are all creating new financing demands. +n the investor side, many countries are now rich enough for insurance and social security and are creating institutional investors that need long,term assets. !hey want to keep their interest rate ;fi ed<, reinvestment ;long term<, and local,currency risks to manageable levels. 2ith macroeconomic stability increasing in many countries, issuers and investors alike are more willing to lock in rates. 9ocal bond markets also strengthen the financial sector by encouraging greater transparency, pushing companies to disclose in public markets and forcing them to better understand themselves and in turn improve their management ;as is the case in equity markets, too<. Bond markets create competition with the local banking sector, which can reduce lending rates. #deally, countries should try to build both primary and secondary markets for bonds. :rimary markets reduce the three risks noted7 secondary markets, by adding liquidity and broadening the investor base, help reduce funding costs. Many countries will not be able to create secondary markets, and some will find it hard to develop public primary markets. 2hatever the situation, reducing one or two of the three financing risks is worthwhile. (etting local,currency, fi ed,rate, long, term funds in a private placement may cost more than a publicly traded issue but it might be all that a country can do, and will reduce the issuer-s risk. *eveloping bond markets can be more complicated than developing equity markets. Bond markets need supporting pricing infrastructure. !hey operate best when they have money market and longer,term benchmarks. Most emerging markets lack these benchmarks. !he issuer-s credit risk is another ma.or concern. !he issuer has to service and repay the bonds, whereas with equity the issuer can be 0incubated1 from payments as it grows. #nvestors need to make sure issuers have the cash flow to make interest payments and redeem principal. Bond markets simply cannot

18

grow as quickly as equity markets can. $urthermore, bond markets need more sophisticated market participants. #ssuers need to be able to manage their cash flow to make repayments. Bond markets typically need dealers and market makers, which means creating a new class of intermediaries who can take positions and manage their risks. $#6*#6("3 !he obstacles to bond market development can be divided into three broad categories3 those around and across the market, and those inside the fi ed,income markets. %round and %cross the Market !he obstacles in this group stem from the political situation, the macroeconomic situation, and the broader financial system. !he :olitical "ituation3 !he :eople-s Republic of Bangladesh has been a parliamentary democracy since "eptember =>>=. !he present government is headed by the %wami 9eague which has an absolute ma.ority, but the opposition party has stepped up its nationwide program of strikes, processions, and mass meetings. !hese activities have weakened the government-s intentions to foster changes such as the development of the financial market. #n addition, certain commercial and financial regulations are outdated in that they tend to focus on institutions rather than functions. (overnance and accountability are lacking in certain areas, and there are elements of inefficiency in the financial system, mainly concerning the state,owned banking sector. %lthough the government is aware of these problems, it has been slow to improve governance and develop strong institutional capacity. !he problems created by these weak institutions are compounded by an increasingly confrontational political environment. %t the same time, the government has committed itself to launching financial reforms that could help accelerate the country-s rate of growth. !he main goal of these reforms is to reduce the direct controls on the financial system, and to deregulate and

19

introduce a new set of market,oriented approaches to financial sector activity. !he Bangladesh 6ational Budget for =>>>5?@@@, for e ample, earmarks funds for the creation of a central depository system ;'*"< to help streamline trading at the stock e changes and improve authentication. $urthermore, a proposal is under scrutiny that would amend the !rust %ct to allow provident and pensions funds to invest in the capital market. !o achieve that goal, it will be essential to ease the bad,loan situation, which is draining the country of its monetary resources. But certain factions in Bangladesh oppose those aims and commitments. "ince no one has stepped forward to 0champion reform,1 the government appears unwilling and unable to undertake the requisite changes in due time. Because the political environment is so fragile, laws and regulations are not being fully enforced. Macroeconomic "ituation3 Bangladesh-s macroeconomy was fairly strong throughout the =>>@s, with growth rates averaging a respectable AB, and inflation averaging a modest >B5=@B. !he primary fiscal deficit during the past five years has averaged about A.AB of (*:, which has generally been within sustainable limits. ;Cowever, the consolidated public sector deficit, taking into account losses incurred by state,owned enterprises, is much higher and underscores the need for improved fiscal management, although foreign e change reserves have become more stable recently owing to impressive e port performance and reduced imports.< Ceightened foreign investor interest in the country-s natural gas sector has opened up tremendous possibilities. But despite these positive elements there are some serious constraints on the development of active corporate bond markets in Bangladesh. $irst, Bangladesh is one of the poorest countries in the world, with appro imately =?A million inhabitants, of which about D@ million live below the poverty line. %lthough its (6: growth rates8in the range of EB5AB year8are attractive, they suggest that it will take Bangladesh ?A years to double its per capita income. #n order to reduce the incidence of poverty to about ==B, as it hopes to do, Bangladesh will have to achieve economic growth rates of F.AB or more a year. %ccording to several studies ;see, for e ample, 2orld Bank, 0Bangladesh, Gey 'hallenges for the 6e t Millennium,1 %pril =>>><, economy has the capacity to move out of poverty with increasing speed, but that will require decisive policy actions in several areas, not least of which is the financial market. Cowever, a sense of urgency is missing in policymaking, despite the growing imbalances in the

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economy and crowding out as Bangladesh continues to channel vast monetary resources into servicing bad loans. (iven that macroeconomic changes can happen in short periods of time and that non,performing loans, which account for a third of the loan portfolio, can create financial sector vulnerability, the bad,loan situation could trigger a severe liquidity crisis nationwide. #t can take decades to build a fi ed,income market in the wake of such crises. !his issue clearly needs immediate and focused attention. #f the country-s positive macroeconomic trends continue into the future, the fiscal deficit and bad,loan situation will ease up and these factors would pose less threat to the financial market. Broader 9aws and Regulations3 'ertain omissions or drawbacks of the broader laws and regulations directly affect development of the fi ed,income market. $irst, with regard to the ownership of land, the law provides for the registration of deeds rather than of ownership, which makes it impossible to take land as collateral for bond issuance. "econd, the law makes arbitration a cumbersome and slow process7 moreover, foreign arbitration awards are not enforceable in Bangladesh. !hird, in terms of obtaining issuers, there is no privatization law to lend transparency and authority to the privatization process, although one is at present being drafted. $ourth, Bangladesh-s laws represent a mi ture of codified British common law and legal principles from various religious heritages. %lthough the court system derives from a common law tradition, Bangladesh courts are limited in their ability to function effectively. #n view of these constraints, the legal system can move only so fast in amending the laws and enacting new ones, even though the government acknowledges the need for such changes. 'ontract laws and commercial codes seem to be fair, but ensuring that they are observed is difficult because of a weak ad.udication system. Broader $inancial "ystem3 !he broader financial system includes the banking sector, nonbanking sector, government securities market, and short,term money markets. Banking sector. Bangladesh-s banking system, which is dominated by state,owned 6'Bs, creates two serious problems for a local corporate bond market.$irst, the system provides low,cost loans to stateowned

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enterprises, which account for a large part of the corporate sector. !his undermines development of the corporate bond market because other financial institutions are unable to compete with these 0underpriced loans.1 #ndeed, the state,owned enterprises constitute a large part of the 6'Bs- business. !o complicate matters,development financial institutions ;*$#s< also provide low,cost loans, priced at a small percentage over bank deposits for similar maturities. "econd, the banking sector is faced with a substantial number of bad loans7 nonperforming assets account for about H@B of total assets. %lthough these nonperforming assets can be said to create a need for an active bond market, to the e tent that banks are constrained in new lending and thereby cannot meet the funding needs of corporate borrowers, they also rob the bond market of needed investors. Iet the state,owned banks .ust keep on making bad loans. 6onbanking sector. !he nonbanking portion of the financial sector consists of two small stock e changes ;*haka and 'hittagong<,? both of which have still not recovered from the bull market problems of =>>D, which left the public suspicious of corporate institutions because it is hard to get them to disclose their figures. %t that time, the stock e change e perienced a hefty run,up in prices owing to a large inflow of funds from retail investors. !his inflow, drawn by the prospect of easy money, was a new e perience for the Bangladesh people, but it lasted only the second half of =>>D. #n those si months the inde soared from A@@ to HA@@ and the market came crashing down to about D@@. !he stock market has not recovered yet3 in May =>>> the inde hit a DH,month low, at about EDA. !he average daily turnover in the spring of =>>> was about J"K= million to J"K? million. !he weak operating performance by listed companies and low confidence in the market overall has made it difficult for the market to recover. #n sum, the nonbanking sector has not evolved in a way that would allow it to play an active role in the financial system. 6or, as discussed in the section on intermediaries, is it prepared to play an active and skilled leadership role in developing and participating in an active fi ed income market. (overnment securities market3

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!he government securities market in Bangladesh is small, does not provide much of a yield curve to support a corporate bond market, and does not provide intermediaries with skills and a profit base to support the corporate bond market. %t present, the government issues long,term savings certificates at high interest rates and government bonds, and it only has market,oriented rates for !,bills. %t the shorter end of the market, !,bills are auctioned weekly for >= days and the Bangladesh Bank ;BB< occasionally issues paper for =L@ days, HDA days, and F?@ days. 'ommercial banks participate in auctions weekly for >=,day !,bills, whereas the others are issued occasionally. %ccepted bids are noted in the newspapers. !he market is small, with outstandings of about J"KL@@ million. !here is no secondary market and no market for repurchase agreements ;0repos1<. !,bills are transferable, but settlement is manual and very slow, done through BB. +n the whole, !,bills are mainly used to satisfy statutory liquidity requirements ;"9Rs<. !he past few years have seen a clear bias for short,term borrowing. (overnment bonds, with maturities ranging from H to ?A years, are issued when needed7 they do not create a yield curve as !,bonds are nontransferable, mostly because they are issued to recapitalize state,owned banks. !heir notable feature is that they are guaranteed by the government and are eligible for "9Rs. (overnment savings certificates ;("'s< range in maturity from three to eight years. ("'s are offered to different types of investors in the retail sector ;but small corporate are allowed to invest<. !he types of investors are mostly individuals and families but also include charity and provident funds. ("'s are issued in series through the year. !he holder may redeem them at par at any time. $inally, ("' issuances offer significantly higher rates than local bank deposits, which create a relatively high rate for risk,free and ta ,free government securities. !his establishes a high benchmark rate for corporate fi ed,income securities, creating a disincentive to invest in corporate securities. ("' rates are ?B5HB higher after ta compared with rates on other government paper. ("'s create a

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high benchmark interest rate foundation for corporate securities. !hat matters because it is very hard to compete with risk,free government debt. %t present, Bangladesh law and the government-s fiscal and monetary policy combine to create a financial market monopoly for ("'s and 6'Bs, which in turn keeps alternate financial intermediation from emerging. Bangladesh needs a healthy nonbank financial institution ;6B$#< sector to increase mobilization and make competitive financing available in a fi ed,income market. !o achieve that end, it must break the 6'Bs- monopoly. %lthough the government is aware of this problem and has put forward some relevant reforms, there are no real incentives to speed up the process, maybe because of political considerations. "hort,term money markets3 Money markets provide another foundation for bond markets. !he money markets in Bangladesh are quite small. !here is an interbank market, in which commercial banks borrow and lend to ad.ust their short positions ;the size of this market is not publicly known<. 6ormal maturities range from overnight to H@ days. Bangladesh also has a forward market for J.". dollars against the taka, but only for short maturities. !here is no commercial paper market. #nside the $i ed,#ncome Markets !he important factors to consider inside the fi ed,income markets are regulators and regulations, central market infrastructure, and intermediaries. Regulators and Regulations3 +ne impediment at the regulator and regulation level is the overlapping authority between the two financial market regulators, Bangladesh Bank and the "ecurities and 4 change 'ommission ;"4'<, and no clear .urisdiction over the fi ed,income market. #n general, BB regulates the commercial banks and their activities, while the "4' regulates the 6B$#s, the two stock e changes, and the capital market. % second problem is that the "4' has no authority to issue rules and regulations, and the procedure as a whole is long and drawn out. %s a result, the "4' has not proposed any regulations for the issuance of bonds or debentures. %ll rule proposals must first be

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submitted to the Minister of $inance for approval and then passed on for approval from Ministry of 9aw. $urthermore, potential issuers have to look at various sets of regulations and follow a long and cumbersome procedure. !hird, although the "4' requires listed companies to meet international standards on accounting and auditing, accounting information appears to be of doubtful quality and reliability. $ourth, the "ecurities and 4 change %ct of =>>H confers vast regulatory authority on the state, and is regarded as a constraint on capital market development. !here is a board of policymakers. !hree of its members are appointed by the state, another is from the Ministry of $inance and one from the central bank, and the chairman is appointed by the government. $ifth, in the present system, a company can float debentures up to a ma imum amount of its current asset value and has to register its assets in the name of the !rustee as "ecurity. Cence there is no provision for floating unsecured debentures. 'entral Market #nfrastructure3 #n the absence of a secondary market in fi ed,income securities, no effort has been made to build up a central market infrastructure to support it. Bangladesh only has a telephone market for !,bill trading and central market infrastructure at the stock e change for trading equities and debentures. #n the !,bill market, the counterparts call each other and settle transactions without any transparency in real time for other participants in the market. %t the stock e change, the debenture market is fully automated. !he debenture market has a somewhat more transparent order,matching system in that bids and offers are entered in the computer and then matched automatically. Bangladesh has no central depository system, though one is e pected to start operating in ?@@@. !oday, clearing and settlement are done manually, which creates various risks to completing a transaction. %lso lacking are a credit rating agency, research and information companies, and market information on screens7 market

25

participants are referred to other media, such as the daily financial newspaper, and thus e perience a delay in obtaining essential eco, nomic information. %ccording to some participants, even that information is often unreliable. Market :articipants3 Market participants can be divided into issuers, investors, and intermediaries. #ssuers3 !he foremost impediment here is that Bangladesh lacks a significant number of potential, good,quality issuers. #ts economy continues to be agriculturally based7 agriculture accounts for nearly H@B of the country-s (6:, and more than F@B of the labor force is engaged in agricultural activities. !he industry and service sectors contribute ?@B and A@B, respectively, but compared with landholdings, the average size of industrial and commercial enterprises is rather modest. Most private sector enterprises are small and owner,run, many are of 0cottage size1 and most are in the garment industry, which to date depends largely on short,term bank loans for financing. !hese enterprises could benefit from longer,term funding but are neither large enough nor well known enough to issue bonds. Most of the large,scale industrial units and commercial enterprises are state owned. !heir shares are not listed, and they do not offer debentures since their financing needs are met by the government or by the state,owned 6'Bs. !hese state,owned firms generally stay outside the capital market. !he privatization program for state,owned companies works too slow to influence the market. "econd, although Bangladesh has a debenture market, to date only a small number of well,known issuers have used the market ;see table ?<. !he liquidity in those debentures at the stock e change is insignificant because of the small number of investors and their buy,and,hold mentality. !he investor community does not seem to find this market too attractive owing to weak disclosure by the issuers, which in turn reduces credibility and investor confidence.

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!hird, companies find that issuing debt is costly, both in monetary and nonmonetary terms. !he interest rate distortion due to the ("'s mentioned earlier raises the ongoing cost of borrowing, while various up,front costs amount to about FB of the value of the issue ;these include registration costs8that is, stamp duties8totaling about ?.AB of the issue value<. $ourth, it is difficult to persuade issuers to disclose sufficient information about their companies ;although prospectus requirements for listed debentures do seem fair<. Iet another problem is that most potential issuers are unwilling to take the opportunity cost involved in issuing a long,term bond. #n addition, the absence of a yield curve makes pricing difficult. #nvestors3 +n the investor side, few investors are sophisticated enough to think about investing in bonds. %bout L@B of the base here is made up of retail investors, whose primary concerns include the equity at the stock e change or the government savings certificate. +f the few institutional investors that could support a bond market, most are either prevented from investing in corporate bonds by restrictive guidelines or are not professionally managed. !he ma.or institutional investors are the #nvestment 'orporation of Bangladesh8a government,owned financial institution8and the insurance companies. !he mutual fund industry in Bangladesh is the e clusive domain of #'B. !here are no private mutual funds to mobilize savings toward the debt market, and the #'B-s monopoly has prevented new investor companies, that is, mutual funds, from developing in Bangladesh. !here are provident and pension funds ;total assets managed amount to !k D.F billion7 see !he $inancial 4 press<, self,managed by public and private corporate entities, but none are professionally managed. !he pension obligations of the gov, ernment are not funded. !he !rust %ct of =LL? prohibits those funds from being invested in equities, corporate debentures, and private money market instruments.

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#n addition, no protective laws are in effect to ensure that investors will get their dividend and capital back. Missing are higher audit standards together with "4' regulations on disclosure standards in prospectus along with arbitrary institutions. $urthermore, most investors lack a trading mentality and .ust buy and hold because of "9R requirements or because they do not know how to trade. $ew foreign investors are attracted to this, mainly because of the weak disclosure by the borrowers. %s for the general public, it has little understanding of debt products, and the intermediaries are not much help because few engage in research on markets, companies and industries to encourage investment. #ntermediaries3 #ntermediaries in Bangladesh lack many of the skills needed to foster an active local corporate bond market. %s mentioned earlier, commercial banks dominate the financial sector and not enough intermediaries are skilled in securities. $ew are able to identify issuers and investors and bring them to the market. !hey provide little or no research analysis on industries or companies to encourage investment in the local debt market. !oo few private merchant banks are able to conduct financial advisory and trust services. 6or do any feel motivated to become a market maker for an issue. Cence the market is illiquid, with large spreads. %t the same time, the fee structure and pricing are high enough to allow intermediaries to make money, but because transactions are so limited, the intermediaries seldom make money. 4ven if they are able to participate, intermediaries are reluctant to take any risk in dealing. :rospects of a bond market in Bangladesh3 *espite the earlier setbacks the bond markets in Bangladesh is ready to take off. !he need for a bond market in Bangladesh deserves attention because of the following3 &$oreign aid flow is diminishing and the trend is e pected to continue.

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&"pecialized banks are not in a position to supply desired level of long term fund. &'ommercial banks have strategically cut down their long term lending. &!he concept of prudent asset mi is most likely to generate demand for investment grade bonds. &!he :rovident $unds and #nsurance 'ompanies $unds are not generally allowed to invest their funds in stock market instruments. !here is a bright possibility that these funds may be permitted to invest a part of their funds in marketable instruments sub.ect to prudential guidelines, which may necessitate supply of lucrative debt instruments. &Reduction in the interest on (ovt. savings instruments and withdrawal of certain savings instruments is e pected to boost demand for debt instruments. &!he registration fee for trust deed has been reduced from ?.AB ;on the amount of debentures< to !k. ?A@@.@@ providing a very significant incentive. & !here are now credit rating agencies to provide rating prospective issuer. &%ny interest paid by investor on money borrowed for investment in debentures is deducted from total income. &#nterest income not e ceeding !k. ?@@@@ received by an individual investor on debentures approved by "4' is e cluded from total income.. &!he interest on Mero coupon bond approved by "4' at the hand of the recipient is ta e empt upto !k. ?A@@@.@@. "uch interest e ceeding !k. ?A@@@.@@ is sub.ected to ta N =@B deducted at source. Banks and other financial institutions and insurance companies which are the mainstay of demand for bonds will now pay =@B ta on interest on such bonds instead of EAB ta payable on other income R4'+MM46*%!#+6"3 Recent developments and events have already created an environment conducive to fosterage of the debt market. % number of financial

29

institutions have sold bonds or debentures to institutions. $urther, an #slami Bank has decided to issue perpetual bond sub.ect to approval of relevant authorities. #t is also e pected that quite a number of institutions will float bonds through securitisation in the near further. % sustainable bond market needs enabling policies. !he following actions and policy measures are seen important to promote a bond market in Bangladesh. &%ll issues of debentures be rated by independent rating agency prior to issue. 'ompanies issuing bondsOdebentures to public may be rated periodically to keep track of issuing companyPs financial position. &:ublic utilities and infrastructure pro.ects be asked to raise a part of debt through issue of marketable bonds. &#ndustrial companies with good track record be advised to issue marketable bonds instead of relying on bank financing. &4 isting public utilities and infrastructure pro.ects be advised to securitise debts by issuing marketable bonds. &4 isting industrial companies be encouraged to replace a portion of bankO*$# loans with marketable bonds. &!o facilitate liquidity of marketable bonds, discounting facilities may be provided by financial institutions. & "ystems of market makers ;specialists< may be evolved to facilitate market for marketable bonds. &Bond maturities be diversified between one year and seven years as to give investors with different maturity profiles the option of purchasing debentures with different maturities. &!he methods of revolving underwriting facility ;RJ$< may be introduced so that companies can issue short,term debentures whenever necessity arises. RJ$ is a system in which a consortium of underwriters make commitment to the issuing company to purchase all the unsold portions of the short,term debentures which may be issued from time to time during a certain period ;e.g. five years< up to

30

certain ma imum amount. &'oupon rates and all other issuing conditions of debentures be determined by market forces. & 'oupon rates may differ according to the rating of the issuer accorded by independent rating agency. &#n order to make long,term investment more attractive, issuers may find it useful to increase the coupon rate as years go by, e.g. > percent in the first year, =@ percent in the second year, == percent in the third year and so on. "uch increasing coupon rate methods will be useful, especially if the investor is given the right to call for redemption of the bonds at the end of each year so that he may choose to hold them to en.oy a higher coupon rate. &#nterest received by individual investors on bondsOdebentures approved by "4' may be fully e empted from ta . & #nvestment in bondsOdebentures approved by "4' may be given ta ,e empt status up to a certain limit. &!he ta ratesOrelief available to investors on Mero coupon bonds may be e tended to all other bondsOdebentures approved by "4'. #f all the above things can be done, then this could pave the path for a well,functioning bond market that can change the e isting bank,oriented financial system to a multilayered system, where capital markets can complement bank financing. R4$4R46'43 Qeff Madhura. 0$inancial Markets and #nstitutions1 ;Fth 4dition<. !homson south,western "cott Besley ) 4ugene $. Brigham. 04ssentials of Managerial $inance1;=Hth 4dition<. !homson south,western :eter ". Rose ) "ylvia '. Cudgins. 0Bank Management ) $inancial "ervices1 ;Fth 4dition<. Mc(raw,Cill #nternational 4dition http3OOen.wikipedia.orgOwikiOBondRmarket ;Retrieved on3 =E.@E.?@@L<. http3OOwww.bangladesh,bank.orgOseminarOiwdbmbdOseciia@D.html ;Retrieved on3 =E.@E.?@@L<.

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Conclusions
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"his paper reviewed theoretical and empirical work on the relationship between financial development and economic growth. "heory illuminates many of the channels through which the emergence of financial instruments, markets and institutions affect ## and are affected by economic development. 3 growing body of empirical analyses, including firm# level studies, industry#level studies, individual country#studies, time# series studies, panel#investigations, and broad cross#country comparisons, demonstrate a strong positive link between the functioning of the financial system and long#run economic growth. >hile sub$ect to ample -ualifications and countervailing views noted throughout this article, the preponderance of evidence suggests that both financial intermediaries and markets matter for growth even when controlling for potential simultaneity bias. Furthermore, microeconomic#based evidence is consistent with the view that better developed financial systems ease external financing constraints facing firms, which illuminates one mechanism through which financial development influences economic growth. "heory and empirical evidence make it difficult to conclude that the financial system merely and automatically ## responds to economic activity, or that financial development is an inconse-uential addendum to the process of economic growth. In the remainder of this :onclusion, I discuss broad areas needing additional research. In terms of theory, *ection II raised several issues associated with modeling finance and growth. Kere I simply make one broad observation. Our understanding of finance and growth will be substantively advanced by the further modeling of the dynamic interactions between the evolution of the financial system and economic growth *mith, .;;.!. 1xisting work suggests that it is not $ust finance following industry. 4ut, neither is there any reason to believe that it is $ust industry following finance. "hus, we need additional thought on the co#evolution of finance and growth. "echnology innovation, for instance, may only foster growth in the presence of a financial system that can evolve effectively to help the economy exploit these new technologies. Furthermore, technological innovation itself may substantively affect the operation of financial systems by, for example, transforming the ac-uisition, processing, and dissemination of information. +oreover, the financial system may provide different services at different stages of economic development, so that the financial system needs to evolve if growth is to continue. "hese are mere con$ectures and ruminations that I hope foster more careful thinking. In terms of empirical work, this paper continuously emphasi)ed that all methods have their problems but that one problem plaguing the entire study of finance and growth pertains to the proxies 33

for financial development. "heory suggests that financial systems influence growth by easing information and transactions costs and thereby improving the ac-uisition of information about firms, corporate governance, risk management, resource mobili)ation, and financial exchanges. "oo fre-uently empirical measures of financial development do not directly measure these financial functions. >hile a growing number of country#specific studies develop financial development indicators more closely tied to theory, more work is needed on improving cross#country indicators of financial development.

References

International 1conomics, C9, 1;9#1/1. 4eck, ". .;;/!, NFinancial 5ependence and International "radeO, Review of International 1conomics, 11, .&B#/1B.

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