Markets, Institutions and Transaction Costs

Abstract

The current economic paradigm promoting the role of market institutions in the financial and economic governance in various regions and sectors has several valid justifications and some meaningful objections as well. It is important to appreciate complex interdependencies of institutions and their activities, and the evolution of norms of governance over time. Globalization or economic and financial integration that emerged during the 1990s has made both positive and negative contributions (for a critical review of globalization policies and effects see Baker et al, 1998 and Stiglitz, 2002). The role and limitations of globalization or expansion of markets globally deserve careful scrutiny in the financial sector in relation to the role of this sector in the attainment of development objectives of less developed areas of the society. Some of the implications of financial liberalization and globalization are discussed in chapter 4. The widely debated roles of the government institutions (including regulatory regimes) in contrast to those of market institutions are an excessive simplification of the underlying processes. What is relevant is a judicious combination of government institutions and market as well as other private institutions built on a sound judicial system and the rule of law.