Although the growing literature on the importance of finance in economic growth contrasts bank-based financial systems with market-based financial systems, little attention has been paid to the role of the bond market. Correspondingly the role of the bond market has been very small relative to that of the banking system or equity markets in most Asian emerging economies. We argue that the underdevelopment of Asian bond markets has undermined the efficiency of these economies and made them significantly more vulnerable to financial crises | ADB INSTITUTE WORKING PAPER 11 The Case of the Missing Market The Bond Market and Why It Matters for Financial Development Richard J. Herring and Nathporn Chatusripitak July 2000 Asian Development Bank Institute This paper shows that the absence of active bond markets undermines the efficiency of emerging economies in Asia. Underdeveloped bond markets lead to increased instability and vulnerability to financial crises as well as a loss of crucial information which can guide savings and investment decisions. In addition the banking sector will tend to be larger and more vulnerable than it need otherwise be. The representative example of Thailand demonstrates not only the problems of growth without a well-functioning bond market but also the way policies can be successfully implemented to rebuild a financial system with an expanded role for the bond market. ADB INSTITUTE TOKYO ADB Institute Working Paper Series No. 11 July 2000 The Case of the Missing Market The Bond Market and Why It Matters for Financial Development Richard J. Herring and Nathporn Chatusripitak ADB Institute Working Paper 11 ABOUT THE AUTHORS Richard. J. Herring is Jacob Safra Professor of International Banking and Professor of Finance at the Wharton School of the University of Pennsylvania where he has been on the faculty since 1972. He received his doctorate at Princeton University. He was the founding Director of the Wharton Financial Institutions Center and Vice Dean and Director of the Wharton Undergraduate Division. He is currently Director of The Lauder Institute of Management and International Studies and a member of the Shadow Financial Regulatory Committee. His research interests include international fmance financial regulation banking and financial crises. Nathporn Chatusripitak is a . candidate in the Finance Department at the Wharton School of the University of Pennsylvania. He completed his undergraduate degree in electrical engineering at Brown University. This paper is part of
