Investable politics: political institutions, international diffusion, and global stock markets
Based on the theoretical framework of new institutionalism, the dissertation examines the politics of stock market development and securities regulation. The past two decades has witnessed dramatic expansion of stock markets around the world. Indicators such as market growth and regulatory reform have revealed a remarkable change. However, the depth and speed of market growth and regulatory change have not been even across country, region and over time. Some countries enjoyed higher levels of market development, earlier liberalized their markets and enforced a certain regulation than others. In contrast to the propositions built on industrialization, legal traditions, interest groups, or international diffusion, I argue that the characteristic of policymaking systems defined by political institutions – i.e., fragmentation versus concentration – significantly affect not only the development of stock markets, but also the speed of market liberalization and regulatory enforcement. Using panel data from 94 countries from 1960 to 2002, as well as a comparative case study of Korea and the post-Great Depression U.S, I find that fragmented policymaking systems including more veto points enable policy makers to make credible policy commitment, which reduces uncertainty at the market, fosters stable long-term expectations of investors and ultimately contributes to stockmarket growth. Contrary to the conventional wisdom, such institutional fragmentation and policy credibility turn out conducive to market liberalization and regulatory enforcement, too. These findings have important implications of political institutional settings for economic growth, financial reform, and globalization effects.