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Unpublished Paper
State Regulation and Market Development: Why Markets Exist in Certain Countries but not in Others
Academy of Management, Anaheim, California, USA (2008)
  • Roberto Martin N. Galang
Abstract

This paper extends arguments on why markets develop in certain countries but not in others, by analyzing how state regulation moderates the impact of transaction costs on market development. I argue that by controlling corruption, defining property rights, enforcing contracts, and reducing uncertainty, efficient state institutions facilitate market development by changing the relative governance costs of markets versus hierarchies, leading to an increased likelihood wherein parties undertake transactions in the market. However, this relationship is only relevant for goods that have substantial inherent transaction costs. Using a seven-year, 40-country dataset on three types of financial cards with differing levels of asset specificity and uncertainty, I find empirical evidence suggesting that improved regulatory efficiency increases per capita circulation of credit cards, and to a lesser extent, debit cards, but not automatic teller machine cards. This result provides empirical support to the premise that state regulation affects the development of markets for goods with significant transaction cost characteristics.

Publication Date
2008
Citation Information
Roberto Martin N. Galang. "State Regulation and Market Development: Why Markets Exist in Certain Countries but not in Others" Academy of Management, Anaheim, California, USA (2008)
Available at: http://works.bepress.com/robertogalang/11/