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Bond Market Development in Asia : An Empirical Analysis of Major Determinants

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  • Biswa Nath Bhattacharyay

    (Asian Development Bank Institute (ADBI))

Abstract

One of the reasons behind the financial crisis in 1997 was excessive dependence of Asian economies on commercial banks for domestic financing. Banks were the major source of corporate financing because the other major source, bond markets, was underdeveloped and small. On the other hand, the 2008 global financial crisis led to constraints in acquiring local currency and foreign currency liquidity in the corporate sector, as foreign banks withdrew investments from Asia. Furthermore, Asia needs large quantities of capital (US$750 billion per year for 2010–2020) to develop infrastructure connectivity within and across its economies. Local and regional capital can be channeled for long-term infrastructure projects and other productive investment through bond markets. At this juncture, to enhance bond financing, it is important to examine factors that promote effective development of bond markets. This study attempts to identity the major determinants of bond market development in Asian economies, through examining its relationship with selected key financial and economic factors, and to provide policy recommendations for further developing Asian bond markets. Major determinants for bond market development in Asia include the size of an economy, the stage of economic development, the openness of an economy, the size of the banking sector, and the interest rate spread.

Suggested Citation

  • Biswa Nath Bhattacharyay, 2011. "Bond Market Development in Asia : An Empirical Analysis of Major Determinants," Governance Working Papers 23236, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:govern:23236
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    References listed on IDEAS

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    1. Richard J. Herring & Nathporn Chatusripitak, 2000. "The Case of the Missing Market: The Bond Market and Why It Matters for Financial Development," Center for Financial Institutions Working Papers 01-08, Wharton School Center for Financial Institutions, University of Pennsylvania.
    2. Bhattacharyay, Biswa, 2010. "Financing Asia’s Infrastructure: Modes of Development and Integration of Asian Financial Markets," ADBI Working Papers 229, Asian Development Bank Institute.
    3. Barry Eichengreen, 2006. "The development of Asian bond markets," BIS Papers chapters, in: Bank for International Settlements (ed.), Asian bond markets: issues and prospects, volume 30, pages 1-12, Bank for International Settlements.
    4. Hakansson, Nils H., 1999. "The Role of a Corporate Bond Market in an Economy -- and in Avoiding Crises," Research Program in Finance, Working Paper Series qt6sq4c6g0, Research Program in Finance, Institute for Business and Economic Research, UC Berkeley.
    5. Bernhard Eschweiler, 2006. "Bond market regulation and supervision in Asia," BIS Papers chapters, in: Bank for International Settlements (ed.), Asian bond markets: issues and prospects, volume 30, pages 335-352, Bank for International Settlements.
    6. Biswa Nath Bhattacharyay, 2010. "Financing Asia’s Infrastructure : Modes of Development and Integration of Asian Financial Markets," Finance Working Papers 21883, East Asian Bureau of Economic Research.
    7. Nils H. Hakansson, 1999. "The Role of a Corporate Bond Market in an Economy - and in Avoiding Crises," Research Program in Finance Working Papers RPF-287, University of California at Berkeley.
    8. John Hawkins, 2002. "Bond markets and banks in emerging economies," BIS Papers chapters, in: Bank for International Settlements (ed.), The development of bond markets in emerging economies, volume 11, pages 42-48, Bank for International Settlements.
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    Cited by:

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    2. Asian Development Bank Institute, 2017. "Asia Bond Monitor - November 2016," Working Papers id:11732, eSocialSciences.
    3. Jamel Boukhatem, 2021. "What drives local currency bond market development in Saudi Arabia: do macroeconomic and institutional factors matter?," Future Business Journal, Springer, vol. 7(1), pages 1-18, December.
    4. Oke Michael O. & Dada Oluwabunmi & Aremo Nelson O., 2021. "Impact of Bond Market Development on the Growth of the Nigerian Economy," Folia Oeconomica Stetinensia, Sciendo, vol. 21(1), pages 60-75, June.
    5. Bose, Udichibarna & MacDonald, Ronald & Tsoukas, Serafeim, 2015. "Policy initiatives and firms' access to external finance: Evidence from a panel of emerging Asian economies," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-65, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    6. Sanjay Kumar Rout & Hrushikesh Mallick, 2022. "Sovereign Bond Market Shock Spillover Over Different Maturities: A Journey from Normal to Covid-19 Period," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 29(4), pages 697-734, December.
    7. Rahman, Md. Nafizur & Nower, Nowshin & Abbas, Syed Mahdee & Nahian, Abdullah Hill & Tushar, Md. Raqibul Hasan, 2020. "Introduction of Bond Market: Would it be a possible Solution for Bangladesh?," MPRA Paper 101159, University Library of Munich, Germany.

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    More about this item

    Keywords

    domestic financing; Asian economies; bond market development;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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