New Horizons in International Business series
Edited by Gavin Boyd, Alan M. Rugman and Pier Carlo Padoan
Chapter 9: The development and structure of financial markets in the European-American economy
9. The development and structure of financial markets in the European– American economy George G. Kaufman* 1. INTRODUCTION Empirical evidence clearly demonstrates that ﬁnancial institutions and markets that maximize the ﬂow of funds from savers (lenders) to investors (borrowers), allocate the funds efﬁciently and permit diversiﬁcation of risk for lenders both within countries and across countries are a prerequisite for lasting real macroeconomic development and growth. (For a recent summary of the evidence, see Levine, 1997; Wachtel, 2003.) In addition the evidence also demonstrates that the performance of the financial sector importantly affects the performance of the macro economy both domestically and across national boundaries. Moreover breakdowns in banking and ﬁnancial markets feed back to cause or intensify breakdowns in macroeconomic activity (Bank for International Settlements, 2002). As a result, the current ﬁnancial public policy focus of many countries and ofﬁcial international organization centres on improving ﬁnancial sector efﬁciency by reforming ﬁnancial regulations and reducing extant barriers that restrict freedom of entry and operation, including pricing, in ﬁnancial markets both within and across countries. At the same time, recent and continuing rapid advances in computer and telecommunication technology have greatly increased the volume of domestic as well as cross-border (transnational) capital ﬂows by both reducing the operational cost and increasing the speed of transmitting funds across great distances, including across national boundaries. It is now as cheap and as fast to transfer funds from Chicago to London, Frankfurt, Tokyo or Singapore as it is to transfer...
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