Financial Innovations and the Welfare of Nations : How Cross-Border Transfers of Financial Innovations Nurture Emerging Capital Markets

The central question addressed in Financial Innovations and the Welfare of Nations is how the transfer of financial innovations from developed to developing economies can nurture the dynamics of emerging capital markets. National capital markets can be positioned along a continuum ranging from embryonic to mature and emerged markets according to a decreasing "national cost of capital" criterion. In the introductory chapter Laurent Jacque argues that newly emerging countries are handicapped by a high cost of capital due to "incomplete" and inefficient financial markets. As capital markets graduate to higher level of "emergedness", their national firms avail themselves of a lower cost of capital that makes them more competitive in the global economy and spurs economic growth. Skillful transfer of financial innovations to emerging markets often encourages the deregulation of the country's financial services sector. This results into new conduits for a more efficient capital allocation process such as commercial paper, securitized consumer finance and other disintermediated modes of financing which out-compete traditional financial intermediaries (mostly commercial banks), reduce households' cost of living and conjointly fuel the dynamics of emerging markets. Our response to the central question of how the transfer of financial innovations can enhance the Wealth of Nations is to show that it reduces the cost of capital while not unduly increasing systemic risk. Part I examines the relationship between financial innovations and systemic risk of the international financial system. Front Matter....Pages i-xii Financial Innovations and the Dynamics of Emerging Capital Markets....Pages 1-21 Front Matter....Pages 23-23 Fads and Fashions in the Policy Response To Financial Market Crises....Pages 25-40 Towards a Global Financial Architecture....Pages 41-60 The New Capital Adequacy Framework and the Need for Consistent Risk Measures for Financial Institutions....Pages 61-85 Systemic Risk....Pages 87-106 Front Matter....Pages 107-107 The Secondary Market for Latin American Debt....Pages 109-126 The Role of American Depositary Receipts in the Development of Emerging Markets....Pages 127-153 Screening for Blue-Chip Potential During the ‘Genesis’ of Equity Markets....Pages 155-173 Privatization and Business Valuation in Transition Economies....Pages 175-196 Front Matter....Pages 197-197 Cross-Border Securitization....Pages 199-221 A Tale of Two Citis....Pages 223-245 The Promise and Limits of Financial Engineering in Emerging Markets....Pages 247-265 Engineering a Way Around the Sovereign Ceiling....Pages 267-281 Chargeurs Wool: A Case Study in Securitization....Pages 283-297 Front Matter....Pages 299-299 Insurance: From Underwriting to Derivatives....Pages 301-314 Insurance Derivatives....Pages 315-338 Credit Derivatives and Emerging Markets....Pages 339-355 Back Matter....Pages 357-367 This edited conference volume provides a rich survey of current scholarly and professional thinking about the state of financial innovations and innovators and their diffusion across national boundaries, as well as the welfare-enhancing implications for firms and nation-states. Like the engineering and practice of financial innovation itself, Financial Innovation and the Welfare of Nations is interdisciplinary and international in scope. Leading academics and professionals in economics, finance, strategic management, and law offer their latest thinking on: Financial innovations and the dynamics of emerging capital markets; First-mover advantages and disadvantages with financial innovations; Modeling banking deregulation and systemic risk; Identifying `blue-chip' investments in `frontier' equity markets; Piercing the `sovereign ceiling' with cross-border securitization; Credit derivatives and economic restructuring; and Insurance derivatives and the convergence of the banking and insurance industry