Policy as Myth and Ceremony? The Global Spread of Stock Exchanges, 1980–2005

Abstract

We examine the antecedents and consequences in developing countries of creating a national stock exchange, a core technology of financial globalization. We study local conditions and global institutional pressures in the rapid spread of exchanges since the 1980s and examine how conditions at the point of adoption affected exchanges' subsequent vibrancy. Little prior research connects the process of diffusion with the operational performance of adopted policies. We find that international coercion was associated with more ceremonial adoption but that, contrary to expectations common in institutional research, contagion processes via peer groups and normative emulation of prestigious actors enhanced vibrancy.

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“…Former French colonies were stuck with small or nonexistent financial markets and concentrated corporate ownership, regardless of the helpful advice of the IMF on the benefits of creating domestic stock exchanges. Indeed, with the exceptions of Vietnam and Lebanon, stock exchanges are almost entirely absent from former French colonies, whereas they are widespread among former British colonies (Weber, Davis, and Lounsbury, 2009). Moreover, the presence and vibrancy of financial markets is associated with subsequent economic growth, indicating that countries unable to sustain a financial market (such as former French colonies) are doomed to a permanently weaker economic trajectory (Levine and Zervos, 1998).…”

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