Market Liberalization Reforms Research Articles

Potential risks in the easy market access: A perspective from corporate asset-debt maturity mismatch

The Negative List System for Market Access (NLSMA), which opens all sectors except a proscribed few to market entities, is an innovative product market liberalization reform in China. This study examines the impact of the NLSMA on corporate asset-debt maturity mismatch. The baseline regression results show that the NLSMA significantly aggravates corporate asset-debt maturity mismatch, and this effect is more pronounced in firms with non-state ownership, more severe financial constraints, or higher entrance barriers. We further find that the NLSMA affects corporate asset-debt maturity mismatch from both credit demand- and supply-side factors. Furthermore, the intensified maturity mismatch after deregulation can decrease firms’ profitability and increase the likelihood that firms default. Finally, to alleviate the maturity mismatch, firms may actively obtain resources from powerful stakeholders and improve information transparency.

Unemployment in the euro area and unconventional monetary policy surprises

We examine the impact of the European Central Bank’s monetary policy on the euro area labor markets over the period 2010–2018. Using Jordà (2005) local projection method, we find that unemployment rates decline in response to expansionary monetary policy surprises that can be related to unconventional policy measures. At the same time, hours worked rise. In peripheral countries, the decrease in unemployment rates is relatively pronounced, while in core countries it is only minor. This result can be attributed to the effect of unconventional monetary policy, which was stronger in the periphery, and to the implementation of labor market liberalization reforms.

The effect of overseas investors on local market efficiency: evidence from the Shanghai/Shenzhen–Hong Kong Stock Connect

Using a recent stock market liberalization reform policy in China—the Stock Connect—as a quasi-natural experiment, this study examines the effect of stock market liberalization on market efficiency. Employing a dataset of 17,086 Chinese listed firms covering 2009 to 2018, we find that stock market liberalization improves the market efficiency of the Chinese mainland stock market. We further explore the potential channels through which the Stock Connect can enhance the efficiency of the A-share (A-shares refer to shares issued by Chinese companies incorporated in mainland China, traded in the Shanghai Stock Exchange and the Shenzhen Stock Exchange. They are denominated in Chinese RMB (the local currency). A-shares were restricted to local Chinese investors before 2003, are open to foreign investors via the Qualified Foreign Institutional Investor, RMB Qualified Foreign Institutional Investor, or the Stock Connect programs.) market. The findings show that liberalizing capital markets could benefit local market efficiency by increasing stock price informational efficiency and improving corporate governance quality. The additional analysis shows that stock market liberalization has a significant and positive impact on local market efficiency, enhancing firm value and reducing stock crash risk. We conduct various robustness checks to corroborate our findings. This study provides important policy implications for emerging countries liberalizing capital markets for foreign investors.

Risk linkages between China's stock market and APEC stock markets under China's market liberalization

This paper investigates the risk linkages between China's stock market and APEC stock markets, examine the impact of China's capital market liberalization reforms in 2014, 2016 and 2019, and identifies the contribution of driving factors to risk linkages. The empirical results show that China's capital market liberalization reforms have significantly enhanced the risk linkages between China and external stock markets, strengthened the ability of China's stock market to resist external risk shocks and enhanced the impact of risk factors on the net risk spillover of China's stock market. Additionally, the risk linkages and the contribution of driving factors are time-varying.

Unveil the economic impact of policy reversals: the China experience

PurposeThe purpose of this paper is to reveal the economic impact of policy reversals related to market liberalization reforms in China.Design/methodology/approachTo perform the analysis, the authors hand-collect 59 financial market liberalization policy reversals from 1999 to 2017. These reversals are related to the liberalization of the stock market, bond market, derivatives market, forex market, lending market, and real estate market etc. The authors employ a stylized equilibrium interest rate model from Li et al. (2013) to deduce the impact of policy reversals on economic growth and the associated volatility after the announcement of each policy reversal.FindingsFirst, the authors discover that about half of reversals are related to some tradeoff between the economic growth and the volatility associated with growth. Second, the authors also find that about a quarter of the reversals are detrimental to both the growth and the stability. These reversals, if known to policymakers, should be entirely avoided or corrected. Third, using a simple diagnostic test, the authors can identify detrimental reversals at the intra-day frequency by computing the change of the term spread and the volatility before and after the reversals.Practical implicationsThe findings are useful for identifying effective policymaking in developing countries where mature democratic and rigorous policymaking processes are often lacking and formulating economic policies is challenging. The findings suggest that policy reversals serve China well by improving the quality of the policy made without posing destructive consequences to the existing economic infrastructure. This empirical evidence is important for a better understanding of the benefits of policy reversals on economic growth.Social implicationsThe empirical procedure provides a timely and objective evaluation of policy shifts, allowing for the general public to discern the rationale behind the policy decisions. Consequently, stakeholders’ trust and confidence in policymakers is enhanced so that the probability of the successful implementation of structural reforms may increase in these developing countries.Originality/valueFirst, the results reveal some successful examples of Chinese policymaking in the path of liberalizing financial market. The authors find that the Chinese liberalization policy flip-flops have resulted in a more balanced growth on some occasions with reduced growth rate and volatility. Second, the proposed methodology provides an objective evaluation of policy shifts, allowing for the public to infer the general direction of the impact generated by policy shifts. Subsequently, stakeholders’ trust and confidence in policymakers can be enhanced and/or restored if the process of finding a successful path of structural reforms is unambiguous. Finally, the interest rate model also provides a timely method to evaluate the impact of policy shifts at an intra-day frequency, whereas most macroeconomic indicators are available at longer frequencies such as monthly or quarterly. The timeliness in understanding the economic consequences of policy reversals can be critical to prevent the destructive consequences of bad ones.

Reflections on Consumer Law and Policy in Seychelles

Consumerism only reached Seychelles after a wave of market-liberalization reforms adopted in 2008 as a response to a dire economic crisis. Consumer law is therefore only a recent phenomenon in the country. The main sources of inspiration for Seychelles legislation are the UN Guidelines on Consumer Protection, the EU Directive on unfair contract terms, and the South African Consumer Protection Act. Policy initiatives tend to be modelled either on other small island countries or on Commonwealth countries. The formal legal framework is overall modern and in line with international guidelines. However, the article identifies two sets of challenges encountered in practice. First, local standardization efforts fail to address the matter of poor-quality products entering the market, and this lack of local capacity is insufficiently complemented by reliance on international standards. Secondly, consumers seldom rely on the adjudicatory mechanism provided by consumer laws and informal settlement mechanisms are preferred, which comes at the cost of depriving consumer law operatives of precious interpretative materials, leaving areas of legal uncertainty. While policy guidance from the political sphere would be needed, it is unclear how much attention consumer matters will receive in the medium term.

Impacts of Institutional Intervention on Price Transmissions: The Case of the Ethiopian Commodity Exchange

AbstractIn the aftermath of the market liberalization reforms, interventions in developing countries shifted toward building institutions. One of such interventions is the introduction of commodity exchanges. The theoretical justification is that commoditization reduces the high transaction costs associated with the information and enforcement problems characterizing agricultural markets of these countries. However it is not known whether these potential gains are transmitted to the various markets along a value chain. By taking the Ethiopian Commodity Exchange (ECX) as a case, this paper examines the impacts of the introduction of the commodity exchange in transmitting price signals along the coffee value chain (world‐export‐auction‐producer prices). We found that both the speed and symmetry of transmission remains weak even after the launch of ECX. At each level, the market chain was found to favor buyers. This implies that not only the country's gains from export are sub‐optimal, the cumulative burden is on the millions of smallholder farmers who are located at the bottom of the chain. In a context where local agricultural markets remain traditional and export markets barely competitive, the introduction of the commodity exchange will have limited impacts in improving the performance of markets in transmitting price signals. Other policy measures to further liberalize both local and export markets are required.

The development of market power in the Spanish power generation sector: Perspectives after market liberalization

This paper provides a comprehensive analysis of the market power problem in the Spanish power generation sector and examines how and to which extent the market has developed in terms of market power concerns after the market liberalization reforms. The methodology applied in this study includes typical ex-post structural and behavioral measures employed to estimate potential for market power, namely: concentration ratios (CR) (for the largest and the three largest suppliers), the Herfindahl–Hirschman Index (HHI), Entropy, Pivotal Supply Index, the Residual Supply Index and Residual Demand Elasticity (RDE). The results are presented for the two largest Spanish generating companies (Endesa and Iberdrola) acting in the Iberian Electricity Market (MIBEL), and in the Spanish Day-ahead electricity market. The results show evidence that these companies have behaved much more competitively in recent periods than in the beginning of the market liberalization. In addition, the paper discusses important structural and regulatory changes through market liberalization processes in the Spanish Day-ahead electricity market.

The new middle class in Turkey: A qualitative study in a dynamic economy

Although the middle class phenomenon is a widely investigated topic within a wide range of academic fields such as sociology, political sciences, anthropology, the current study concentrates on the middle class from a marketing perspective in the context of an important Emerging Market—Turkey. The definition we adapt in this study pertaining to the new middle class includes the households that have gained substantial disposable income and have experienced substantial lifestyle changes since the market liberalization reforms which commenced in the 1980s. We first present the importance of the middle class in emerging markets (especially the BRIC), the concept of middle class and the new middle class phenomenon. We then review the literature on the new middle class in Turkey and we explore whether secular and conservative subgroups of the new middle class differ in consumptional and attitudinal dimensions. Finally, we offer preliminary insights based on a qualitative study with 36 new middle class consumers in urban Turkey.

Does the bonding effect matter in a more integrated capital market world?

This paper examines the bonding effect of cross-listing before and after the stock market liberalization reforms in China. Consistent with the bonding hypothesis, we find that Chinese firms with foreign listings attain higher valuations than firms without foreign listings. We also find that they manage earnings less than comparable purely domestic-listed firms and have more informative stock prices. Further investigation indicates that the divergence in earnings quality between cross-listed and non–cross-listed firms shrinks dramatically after the Chinese stock market liberalization reforms in 2001 and 2002. Overall, the results suggest that the bonding effect is mitigated in an increasingly integrated capital market world.

Advokato nepriklausomumas teisinių paslaugų rinkos komercializacijos kontekste: Reliktas ar būtinybė?

The lawyer’s professional independence is considered to be the core principle of the profession. It is often used as defense against the state intervention in the regulation of lawyers. However, drivers in the legal market, such as an increase in competition, concentration of lawyers in large law firms, as well as the globalization, development of information technologies and social networks, which influence the commoditizing of the law and consumer awareness, certainly have shaken up the foundations of the legal profession and require the renewed approach to seemingly immovable values of the profession, including the principle of lawyer’s independence. Hence, the goal of the article is to answer the question whether this principle is still valid in the context of commercialization of the legal market. The first part of the article analyzes the dimensions of the principle of lawyer’s independence, i.e. independence from the state, from the client and other influences, by comparing continental and common law systems. The second part reveals how different approaches to the role of the lawyer influence the realization of this principle in legal regulation and practice. The third part is devoted to the analysis of radical changes in the legal market and new forms of legal services, such as incorporation of law firms, that affect the devaluation of the principle of lawyer’s independence. The article justifies that the lawyer’s independence from the state is realized primarily through strong self-governance and independence of the bar, but the trends in common law countries show that legal professional associations have lost their previous positions, especially in the area of self-disciplining, as they were not able to cope effectively with customers (clients) complains. In addition, the legal market liberalization reforms in Australia and the UK, which enable outside capital invest into law firms, have a tendency to expand to other jurisdictions. Changes in capital ownership structure of legal firms can change the governance and decision-making processes that may lead to the devaluation of the principle of lawyer’s independence yielding to the idea of entrepreneurship.

Information asymmetry, price discovery, and the Chinese B-share discount puzzle

This paper addresses the information asymmetry between Chinese local A-share and foreign B-share markets and its impact on the B-share discount puzzle, contingent upon Chinese stock market liberalization reforms in 2001 and 2002. In contrast with the widespread notion that domestic investors are better informed than foreign investors, this study shows that foreign investors actually possess more value-relevant, firm-specific information in emerging markets, where information transparency and investor protection rights are relatively weak. As such, the observed B-share discount is not compensation for the informational disadvantage of foreign investors but, rather, the result of a downward price correction (toward the fundamental values) once more firm-specific information is capitalized by sophisticated foreign investors in the B-share market. The price correction effect is significant even after controlling for several alternative explanations. Further investigation suggests a mitigated degree of information asymmetry and B-share discount upon market liberalization.

Cross-Country Differences in Credit Market Liberalization Reform Outcomes

The paper analyzes the influence of credit market liberalization on economic growth in more than 100 economies over a period of 30 years. Liberalizing early and consistently is associated with higher living standards. However, although the timing of the reform seems to matter in raising living standards, other factors affect growth even more. Among those are the initial reform conditions, the structure of the economy, and the time-invariant regional characteristics.

Improving market access and agricultural productivity growth in Africa: what role for producer organizations and collective action institutions?

The history of producer organizations in sub-Saharan Africa (SSA) is a mixed one. In the past, producer organizations often failed to provide desired services due to dependence on government support, which led to heavy political interference as well as internal leadership and managerial problems. However, the hasty retreat of the state following adjustment and market liberalization reforms left an institutional void that the private sector has failed to fill. This study reviews the role that producer organizations can play, and the challenges they face in improving access to markets and technologies for enhancing productivity of smallholder agriculture in SSA in the post-adjustment era. The paper critically examines the evidence for improving access to markets, information and technologies, and the conditions that facilitate the success of producer organizations in providing such services. Emphasis is on the characteristics of user groups, institutional arrangements, governance mechanisms, types of products (staples, perishables and other commodities), and the role of the public and private sector service providers. We conclude that while recent experiences are mixed, good governance, more homogeneous and optimal group size, transparency and market orientation can enhance the role of producer organizations in improving access to markets. However, ideally these organizations need to prioritise agribusiness opportunities over social welfare objectives even though this may mean that some households are unable to take advantage of them. Donors and governments have important roles to play in stimulating the emergence and development of economically viable and self-sustaining producer organizations. The private sector is also critical in terms of providing producer organizations with financial and business development services.

Cross-Listing and the Value of Bonding Under Increased Market Integration

This paper examines the bonding effect of cross-listing before and after the stock market liberalization reforms in China. Consistent with the bonding hypothesis, we find that Chinese firms with foreign listings attain higher valuations than firms without foreign listings. We also find that they manage earnings less than comparable purely domestic-listed firms and have more informative stock prices. Further investigation indicates that the divergence in both earnings quality and firm value between cross-listed and non-cross-listed firms shrinks dramatically after the Chinese stock market liberalization reforms in 2001 and 2002. Overall, the results suggest that the bonding effect is mitigated in an increasingly integrated capital market world.

Information Asymmetry, Price Discovery, and the Chinese B-Share Discount Puzzle

This paper addresses the information asymmetry between Chinese local A-share and foreign B-share markets and its impact on the B-share discount puzzle, contingent upon Chinese stock market liberalization reforms in 2001 and 2002. In contrast with the widespread notion that domestic investors are better informed than foreign investors, this study shows that foreign investors actually possess more value-relevant, firm-specific information in emerging markets, where information transparency and investor protection rights are relatively weak. As such, the observed B-share discount is not compensation for the informational disadvantage of foreign investors but, rather, the result of a downward price correction (toward the fundamental values) once more firm-specific information is capitalized by sophisticated foreign investors in the B-share market. The price correction effect is significant even after controlling for several alternative explanations. Further investigation suggests a mitigated degree of information asymmetry and B-share discount upon market liberalization.

Trade Liberalization’s Impact on Agriculture in Low Income Countries: A Comparison of El Salvador and Costa Rica

Due to both deepening economic crises and pressure from external lenders, Costa Rica and El Salvador implemented trade and market liberalization reforms in the 1980s. This study explores whether these policy changes shifted production toward each country’s presumed comparative advantage in agriculture. For Costa Rica, trade and market liberalization strengthened the country’s ability to generate agricultural trade surpluses while liberalization caused a decline in El Salvador’s agricultural sector. Liberalization also affected how prices and exchange rates influence agriculture in both countries. The findings demonstrate that agriculture’s response to liberalization can vary widely among countries. Overall market conditions in the rural sector, including El Salvador’s postconflict challenges, during liberalization’s introduction partly explain the different responses. Other potential factors include the pace that governments implement policy reforms and that liberalization will only stimulate agriculture if the country has a clear comparative advantage in that sector.

Does Market Liberalization Impact Vertical Integration? Lessons from Argentina's Free Market Economy

The article reports on research pertaining to the impact of market liberalization on vertical integration. Specifically Argentina's transformation to a free market economy is discussed. The country's market liberalization reforms in the 1980's were designed to reduce barriers to free trade and integrate Argentina into the world economy. Research has shown a clear relationship between market liberalization and reduced reliance on vertical integration in Argentina. As Argentinian firms increased their input, they could specialize, focus on their core competencies, and develop competitive advantages.

Spatial Market Efficiency and Policy Regime Change: Seemingly Unrelated Error Correction Model Estimation

AbstractWe investigate the degree to which the wheat markets of France, Germany, and the United Kingdom are in spatial equilibrium and how reforms to the CAP affect the speed of convergence to the longrun relationship. Due to the interrelationship among these markets and the nonstationarity of our data we introduce a seemingly unrelated regression‐augmented Dickey‐Fuller and error correction methodology. We argue this methodology is more efficient than ordinary cointegration and error correction models. Empirically we find strong evidence of efficient spatial markets and conformity to the law of one price. Market liberalization reforms in the EU increased the comovement of domestic and world wheat prices; our post‐Uruguay Round price transmission elasticity was 0.183.

Ghana's Mixed Structural Adjustment Results: Explaining the Poor Private Sector Response

The most worrisome aspect of Ghana's fifteen years of market liberalization reforms is the failure of domestic private business to respond enthusiastically with increased investment. Have domestic private entrepreneurs failed to respond because of their own innate weaknesses as popularly believed in official circles? Do they have genuine concerns that are yet to be addressed? This study focuses on the preconditions for the success of market reforms. The study utilizes survey data to demonstrate that domestic private entrepreneurs in Ghana are not positively responding to Ghana's Structural Adjustment Program (SAP) because they still perceive the existing institutional environment as uncertain. If regime leaders in Ghana and in other African countries wish to ensure sustained development through market reforms, they must address the issue of improving and maintaining institutional credibility.