What Determines Bond Market Development? New Theoretical Insights

  • Ameenullah Aman
      University Utara Malaysia
    • Asmadi Mohamed Naim
        Islamic Business School (IBS UUM), UUM College of Business, University Utara Malaysia, Sintok, Malaysia
      • Mohamad Yazid Isa
          Islamic Business School (IBS UUM), UUM College of Business, University Utara Malaysia, Sintok, Malaysia
        Keywords: Bond Market Development, Theoretical Relationship, Financial Crisis, Foreign Capital Inflows


        Purpose- To diversify financing portfolio and reduce the reliance on the banking system, developing economies have realized the importance of bond market development. Bond markets facilitate economies to be more resilient towards the events of financial crises. Therefore, the share of the bond market in the financial system of the Asian economies has remarkably increased in the last decade. However, the academic literature on the bond market is very limited as compared to bank and equity markets. This was mainly because of the unavailability of vast data due to the absence of secondary markets for bonds in most of the economies. To fill this gap, this conceptual study postulates the theoretical relationships of bond market with various macroeconomic and financial factors. The study also assumes some new dimensions for bond financing and opens discussion for scholarly literature and empirical justifications. 

        Design/Methodology- Content analysis approach is used to review relevant literature for the possible associations of the bond market with macroeconomic and financial factors. 

        Practical Implications- The theoretical relationships discussed in the paper need empirical testing in future research to conclude policy implications. If the relationship between foreign capital and bond securities is established with empirical justification, we draw the policy that concerned authorities need to create a suitable environment for the attraction of foreign capital to provide support to the development of domestic debt market.


        Download data is not yet available.


        Adelegan, O. J., & Radzewicz-Bak, B. (2009). What Determines Bond Market Development in Sub-Saharan Africa? IMF Working Papers, 09(213), 1. https://doi.org/10.5089/9781451873603.001 DOI: https://doi.org/10.5089/9781451873603.001

        Aggarwal, R., Demirguc-Kunt, A., & Martinez Peria, M. S. (2006). Do workers' remittances promote financial development?. The World Bank. DOI: https://doi.org/10.1596/1813-9450-3957

        Aman, A., Sharif, S., & Arif, I. (2016). Comparison of islamic banks with conventional banks: Evidence from an emerging market. Journal of Management Sciences, 3(1), 24-33.

        Ameer, R. (2007). What moves the primary stock and bond markets? Influence of macroeconomic factors on bond and equity issues in Malaysia and Korea. ASIAN ACADEMY of MANAGEMENT JOURNAL of ACCOUNTING and FINANCE, 3(1), 93–116.

        Bhattacharyay, B. N. (2013). Determinants of bond market development in Asia. Journal of Asian Economics, 24, 124–137. https://doi.org/10.1016/j.asieco.2012.11.002 DOI: https://doi.org/10.1016/j.asieco.2012.11.002

        BIS. (2002). The development of bond markets in emerging economies. Bis. https://doi.org/10.2139/ssrn.1187575 DOI: https://doi.org/10.2139/ssrn.1187575

        Bondt, G. D. (2005). Determinants of corporate debt securities in the Euro Area. The European Journal of Finance, 11(6), 493–509. DOI: https://doi.org/10.1080/1351847042000255661

        Braun, M., & Briones, I. (2006). The Development of Bond Markets around the World, (February).

        Burger, J. D., & Warnock, F. E. (2004). Foreign Participation in Local-Currency Bond Markets, (December).

        Chowdhury, K., & Chowdhury, M. (1992). Trade in labor services and its macroeconomic effects on a small economy: evidence from Bangladesh. In Proceedings of the 14th International Symposium on Asian Studies (Vol. 6, pp. 327-334).

        Claessens, S., Klingebiel, D., & Schmukler, S. L. (2007). Government bonds in domestic and foreign currency: the role of institutional and macroeconomic factors. Review of International Economics, 15(2), 370-413. DOI: https://doi.org/10.1111/j.1467-9396.2007.00682.x

        Das, D. K. (2005). Asian economy and finance: A post-crisis perspective. Ontario: Springer.

        Davis, E. P., & Stone, M. R. (2004). Corporate financial structure and financial stability. Journal of Financial Stability, 1(1), 65-91. DOI: https://doi.org/10.1016/j.jfs.2004.06.003

        Demirguc-Kunt, A., & Levine, R. (1996). Stock Markets, Corporate Finance, and Economic Growth - An Overview.pdf. The World Bank Economic Review. https://doi.org/10.2307/3990061

        Durand, J., Kandel, W., Parrado, E. A., & Massey, D. S. (1996). International migration and development in Mexican communities. Demography, 33(2), 249-264. DOI: https://doi.org/10.2307/2061875

        Eichengreen, B., & Luengnaruemitchai, P. (2004). Why doesn't Asia have bigger bond markets? (No. w10576). National Bureau of Economic Research. DOI: https://doi.org/10.3386/w10576

        Eichengreen, B., Panizza, U., Borensztein, E., 2008. Prospects for Latin American bond markets: a cross-country view. In: Borensztein, E., Cowan, K., Eichengreen, B., Panizza, U. (Eds.), Bond Markets in Latin America: On the Verge of a Big Bang? MIT Press, Cambridge, pp. 247–290. DOI: https://doi.org/10.7551/mitpress/9780262026321.003.0009

        Fanta, A. B. (2017). Bond markets, stock markets, banks and growth: A system GMM analysis. Global Business and Economics Review, 19(1). https://doi.org/10.1504/GBER.2017.080779

        Fink, G., Haiss, P., & Hristoforova, S. (2003). Bond Markets and Economic Growth, 39(April), 1–35.

        Godlewski, C. J., Turk-Ariss, R., & Weill, L. (2013). Sukuk vs. conventional bonds: A stock market perspective. Journal of Comparative Economics, 41(3), 745–761. https://doi.org/10.1016/j.jce.2013.02.006

        Gopinath, S. (2007). Development of Local Currency Bond Markets: The Indian Experience. Debt, Finance and Emerging Issues in Financial Integration, 1–26.

        Gupta, S., Pattillo, C. A., & Wagh, S. (2009). Effect of remittances on poverty and financial development in Sub-Saharan Africa. World development, 37(1), 104-115. DOI: https://doi.org/10.1016/j.worlddev.2008.05.007

        Herring, R. J., & Chatusripitak, N. (2000). The case of the missing market: The bond market and why it matters for financial development.

        Hristoforova, G. F. / P. H. / S. (2003). Bond Markets and Economic Growth. IEF Working Paper, (April), 1–31.

        Kapingura, F., & Makhetha-Kosi, P. (2014). The Causal Relationship between the Bond Market Development and Economic Growth in Africa: Case Study of South Africa. Mediterranean Journal of Social Sciences, 5(3), 126–131. https://doi.org/10.5901/mjss.2014.v5n3p126

        Korajczyk, R., & Levy, A. (2003). Capital structure choice: Macroeconomic conditions and financial constraints. Journal of Financial Economics, 68(1), 75–109. DOI: https://doi.org/10.1016/S0304-405X(02)00249-0

        Matei, I. (2013). Government bond market linkages within EMU: Evidence from a multivariate Granger causality analysis. Economic Bulletin, 33(3), 1885---1898.

        Massey, D. S., & Parrado, E. (1994). Migradollars: The remittances and savings of Mexican migrants to the USA. Population Research and Policy Review, 13(1), 3-30. DOI: https://doi.org/10.1007/BF01074319

        Mihaljek, D., Scatigna, M., & Villar, A. (2002). Recent trends in bond markets. BIS papers, (11), 13-41.

        Min, H. G. (1998). Determinants of Emerging Market Bond Spread: Do Economic Fundamentals Matter ?, (March).

        Mu, Y., Phelps, P., & Stotsky, J. G. (2013). Bond markets in Africa. Review of Development Finance, 3(3), 121–135. https://doi.org/10.1016/j.rdf.2013.07.001

        Mundaca, B. G. (2009). Remittances, financial market development, and economic growth: the case of Latin America and the Caribbean. Review of Development Economics, 13(2), 288-303. DOI: https://doi.org/10.1111/j.1467-9361.2008.00487.x

        Ndikumana, L. (2000). Financial Determinants of Domestic Investment in Sub-Saharan Africa : Evidence from Panel Data, 28(2).

        Park, J., & Shenoy, C. (2002). An examination of the dynamic behavior of aggregate bond and stock issues. International Review of Economics and Finance, 11, 175– 189. DOI: https://doi.org/10.1016/S1059-0560(01)00104-6

        Pradhan, R. P., Arvin, M. B., Bennett, S. E., Nair, M., & Hall, J. H. (2016). Bond Market Development, Economic Growth and Other Macroeconomic Determinants: Panel VAR Evidence. Asia-Pacific Financial Markets, 23(2), 175–201. https://doi.org/10.1007/s10690-016-9214-x DOI: https://doi.org/10.1007/s10690-016-9214-x

        Pradhan, R. P., Zaki, D. B., Maradana, R. P., Dash, S., Jayakumar, M., & Chatterjee, D. (2015). Bond market development and economic growth: The G-20 experience, 13(1), 51–65. https://doi.org/10.1016/j.tekhne.2015.09.003

        Rajan, R., & Zingales, L. (2003). Banks and Markets: The Changing Character of European Finance (No. 3865). CEPR Discussion Papers.

        Sachs, J. D., & Williamson, J. (1985). External debt and macroeconomic performance in Latin America and East Asia. Brookings Papers on Economic Activity, 1985(2), 523-573. DOI: https://doi.org/10.2307/2534445

        Sharma, K. (2001). The Underlying Constraints on Corporate Bond Market Development in Southeast Asia. World Development, 29(8), 1405–1419. https://doi.org/10.1016/S0305-750X(01)00043-2 DOI: https://doi.org/10.1016/S0305-750X(01)00043-2

        Smaoui, H., Mimouni, K., & Temimi, A. (2017). Sukuk, Banking System, and Financial Markets : Rivals or Complements ? Economics Letters. https://doi.org/10.1016/j.econlet.2017.09.014 DOI: https://doi.org/10.1016/j.econlet.2017.09.014

        Thumrongvit, P., Kim, Y., & Pyun, C. S. (2013). Linking the missing market: The effect of bond markets on economic growth. International Review of Economics and Finance, 27, 529–541. https://doi.org/10.1016/j.iref.2013.01.008 DOI: https://doi.org/10.1016/j.iref.2013.01.008

        Turner, P. (2002). Bond markets in emerging economies: an overview of policy issues. BIS papers, 11, 1-12.

        Article History
        Received: 2019-01-09
        Published: 2019-01-10
        How to Cite
        Aman, A., Naim, A. M., & Isa, M. Y. (2019). What Determines Bond Market Development? New Theoretical Insights. SEISENSE Journal of Management, 2(1), 99-106. https://doi.org/10.33215/sjom.v2i1.94
        Copyright & License

        Copyright (c) 2019 Ameenullah Aman, Asmadi Mohamed Naim, Mohamad Yazid Isa

        Creative Commons License

        This work is licensed under a Creative Commons Attribution 4.0 International License.