159 Other studies supporting this view,<sup>inadditionto those mentionedin thisparagraph,include Demirguc-</sup> Kunt and Maksimovic (1998), Rajan<sup>and Zingales (1998),Wurgler (2000), Levine andZervos (1998),and</sup> Beck, Levine, and Loayza (2000).

160 Including Bagehot (1873), Hicks (1969),<sup>Schumpeter (1912),Robinson (1952),Lucas(1988),</sup> Chandavarkar (1992), Meir and Seers<sup>(1984),and Stern(1989).</sup> 161 Levine (1997: 688) 162 Wilson (2002: 17 .

**163** World Bank (2002b) and Li, Squire,<sup>and Zou (1997)</sup>

**164** World Bank (2001: 6-7)

**165** Stulz (2001: 146-147)

166 Percentages in this table are not<sup>directly comparable to those of othersources (e.g.,Shirai 2001b).They</sup> may vary for some countries, which<sup>might be due todatabeing obtained from differentsources.The</sup> results, however, are broadly consistent.

167 Japan's percent of GDP for equities<sup>was undoubtedlyhigher during thebubble era.</sup> 168 Japan has become less bank-centered<sup>in recent years.</sup> 169 Stulz (2001) refers to Thurow (1992)<sup>in comparing theAnglo-Saxonsystemof maximizingshareholder</sup> influence to the German/Japan system of<sup>minimizing shareholderinfluence.Dore (2000)examinesthis</sup> subject in detail in his book, Stock Market<sup>Capitalism: WelfareCapitalismwhichcovers the labor,</sup> productivity, financial, cultural and<sup>socialaspectsof these two systems.</sup> 70 IMF (2001b: 214)

**171** Including government bonds,<sup>the total outstandingamounts of localcurrency-denominated long-term</sup> bonds in these countries increased from<sup>$181billion at the end of 1997to$422 billionat the endof 2000.</sup> This was because of the large quantities<sup>of bondsissued by governments in domesticmarketsto fund the</sup> purchase of NPLs and to recapitalize local<sup>banks. (IMF,2001c:214)</sup>

72 Asian Policy Forum (2001) and Shirai<sup>(2001a)</sup>

**173** The APF recognizes three stages in<sup>the developmentof financialmarkets:Stage I -bankdominant,</sup> Stage ll - intermediate, and Stage III -<sup>full-fledgedcapital-marketbased.</sup>

**174** This study is based on recent cross-country<sup>datafrom almost150countries on banks, insurance</sup>

companies, pension and mutual funds,<sup>financecompanies, and stockand bond markets.Italsoincludes</sup> information on each country's political,<sup>economic,and social environment.</sup>

**175** The classifications are based on<sup>thelevel of "financialdevelopmenf'as definedby theauthors(seenote</sup> at the bottom of Table 5.10). This may<sup>differfrom a country'slevel of economic development.In other</sup> words, a country may be a "developing<sup>economy"but at the same time beclassifiedas "financially</sup> developed" in this study (e.g., Thailand<sup>and Malaysia).Or it may be a"developed economy"but classified</sup> in this study as "financially underdeveloped"<sup>(e.g.,Denmark).</sup>

176 The higher the Structure Index, the<sup>higher thelevelof stockmarketdevelopment relative to banking-</sup> sector development.

177 The authors point out that their study<sup>usesa database that "drawson awider arrayof sourcesand</sup> constructs indicators of the size, activity,<sup>and efficiency of a much broader set of financialinstitutions and</sup> markets" than have been used in previous<sup>studiesof thisnature.(Beck,Demirguic-Kunt,and Levine,2001:</sup> 17-18)

**178** Demirgiu-Kunt and Levine (2001<sup>a:120)</sup>

**179** Although their original database<sup>includesindicatorsfor bothequity and bond markets,itappearsthat the</sup> Structure Index shown here incorporates<sup>only equities (and not bonds)in the capital marketsindicators.</sup>

180 Some have tried to establish stock markets<sup>in this waybut were unsuccessful.Harwood(2000:5-6)</sup> 18' For example, Krugman (1999) 182 Harwood (2000) 183 This list presumes that infrastructure,<sup>includingregulationsand regulators,exchanges, and trading and</sup> clearing systems, is already in place.

184 Harwood (2000: 8) 185 However, it should be noted that there<sup>is somediversityin thelevelof developmentof bond markets</sup> among the various countries of the region.

**16** Asian Policy Forum (2001), Shirai<sup>(2001b),Park (2001),and World Bank(2002b).</sup>

**187** Shirai (2001b: 1)

188 IMF (2001b: 215) 126