Market-Mobilized Capital

Theory suggests that capital is more likelyto be efficiently allocated via marketmechanisms, such as bank lending and stockissuance, than via non-market allocation. Consequently, we conjecture that increasedmarket allocation of capital will enhanceeconomic growth. We also posit that goodcollateral and corporate law will increasethe allocation of capital via debt andequity markets, respectively. Usingmeasures of statutory law as instrumentsfor market-mobilized capital, to controlfor its endogeneity in a cross-countrygrowth regression, we demonstrate a clearcausal link between financial marketdevelopment and economic performance.