The Dynamics of Privatization, the Legal Environment and Stock Market Development
Posted: 5 Dec 2008 Last revised: 29 May 2013
Date Written: January 27, 2007
In this paper, we examine under which conditions privatization is an effective means to develop local stock markets for a panel of 61 countries over the last twenty four years. By addressing the endogeneity between privatization and stock market development, we show for the 1980-98 period that the initial legal environment is a significant contemporary determinant of stock market development, while privatization is not. When we examine the dynamics of privatization in interaction with the legal environment, we find that privatization has a two-year-lagged effect on stock market development in emerging markets, and a one-year-lagged effect in developed countries. Results for the 1999-2003 period seem to be largely affected by the global crash that followed the Asian crisis.
Keywords: Stock market development, Privatization, Law, Emerging markets, Developed markets
JEL Classification: G15, G18
Suggested Citation: Suggested Citation