Gozzi, Juan Carlosde la Torre, AugustoSchmukler, Sergio L.2012-06-192012-06-192006-07https://hdl.handle.net/10986/8398This paper argues that the dominant policy paradigm on financial development is increasingly insufficient to address big emerging issues that are particularly relevant for financial systems in Latin America. This paradigm was shaped over the past decades by a fundamental shift in thinking toward market-based financial development and a complex process of financial crises interpretation. The result has been a richly textured policy paradigm focused on promoting financial stability and the convergence to international standards. It argues, however, that there is a growing dissonance between the current paradigm and the emerging issues, which is illustrated by discussing challenges in three areas: stock markets, small and medium enterprise loans, and defined-contribution pension funds. The paper concludes that the dominant policy paradigm is ill-suited to provide significant guidance in relation to the big emerging issues. It emphasizes the need to take a fresh look at the evidence, improve the diagnoses, revisit expectations, and revise the paradigm.CC BY 3.0 IGOACCOUNTINGADVERSE EFFECTALLOCATION OF RESOURCESASSET BUBBLESASYMMETRIC INFORMATIONBALANCE OF PAYMENTSBALANCE SHEETBALANCE SHEETSBANK DEPOSITSBANKING CRISESBANKING SUPERVISIONBENCHMARKBENCHMARKSBONDSBORROWINGCAPITAL ACCOUNTCAPITAL ACCOUNTSCAPITAL FLOW VOLATILITYCAPITAL INFLOWSCAPITAL LOSSESCAPITAL MARKETCAPITAL MARKET DEVELOPMENTCENTRAL BANKCENTRAL BANK INDEPENDENCECONSUMERSCONSUMPTION SMOOTHINGCONTAGIONCORPORATE GOVERNANCECREDIT CEILINGSCREDITOR RIGHTSDEBTDEBT CRISISDEPOSITSDEVALUATIONDEVELOPING COUNTRIESDEVELOPMENT POLICYDOMESTIC CAPITALDOMESTIC CAPITAL MARKETSDOMESTIC CURRENCYDOMESTIC FINANCIAL MARKETSDOMESTIC FINANCIAL SYSTEMDOMESTIC INVESTORSDOMESTIC MARKETSDOMESTIC POLICIESDOMESTIC STOCK MARKETSECONOMIC CONTRACTIONECONOMIC GROWTHECONOMIC SIZEEMERGING ECONOMIESEMERGING MARKETEMERGING MARKETSEMPIRICAL EVIDENCEEQUITY MARKETSEXCHANGE RATEEXCHANGE RATE FLEXIBILITYEXCHANGE RATE POLICYEXCHANGE RATE REGIMESEXCHANGE RATESEXOGENOUS SHIFTSFINANCIAL CONTRACTSFINANCIAL CRISESFINANCIAL CRISISFINANCIAL DEPTHFINANCIAL DEREGULATIONFINANCIAL DEVELOPMENTFINANCIAL FRAGILITYFINANCIAL GLOBALIZATIONFINANCIAL INTERMEDIARIESFINANCIAL LIBERALIZATIONFINANCIAL MARKETFINANCIAL MARKET DEVELOPMENTFINANCIAL MARKET LIBERALIZATIONFINANCIAL MARKETSFINANCIAL OPENNESSFINANCIAL POLICIESFINANCIAL REFORMFINANCIAL REPRESSIONFINANCIAL SECTORFINANCIAL SECTOR REFORMFINANCIAL SECTORSFINANCIAL SERVICESFINANCIAL STABILITYFINANCIAL SYSTEMFINANCIAL SYSTEMSFLEXIBLE EXCHANGE RATEFOREIGN CURRENCYFOREIGN EXCHANGEFOREIGN INVESTORSGDPGLOBALIZATION HAZARDGROSS DOMESTIC PRODUCTHIGH INTEREST RATESHIGH VOLATILITYINFLATIONINFLATION TARGETINGINSIDER TRADINGINSURANCEINSURANCE POLICIESINTEREST RATESINTERNATIONAL CAPITALINTERNATIONAL CAPITAL MARKETSINTERNATIONAL FINANCIAL ARCHITECTUREINTERNATIONAL FINANCIAL INTEGRATIONINTERNATIONAL FINANCIAL MARKETSINTERNATIONAL INVESTORSINTERNATIONAL MARKETSINTERNATIONAL RESERVESINTERNATIONAL STANDARDSINVISIBLE HANDLATIN AMERICANLIQUIDITYLOCAL CURRENCYLOCAL STOCK MARKETMACROECONOMIC POLICIESMARKET CAPITALIZATIONMARKET COMPETITIONMARKET DISCIPLINEMARKET INTEGRATIONMARKET ORIENTATIONMORAL HAZARDMULTIPLE EQUILIBRIANEGATIVE EXTERNALITIESOVERVALUATIONPER CAPITA INCOMEPOLICY RESEARCHPRICE STABILITYPRIVATE SECTORPROPERTY RIGHTSPUBLIC DEBTPUBLIC FINANCESREAL EXCHANGEREAL EXCHANGE RATEREFORM AGENDAREGULATORY ENVIRONMENTSAFETY NETSSAVINGSSECURITIESSECURITIES MARKETSSETTLEMENT SYSTEMSSHORT-TERM DEBTSTOCK MARKETSTOCK MARKETSSTOCKSTRANSPARENCYVALUE ADDEDWEALTHWorld Bank10.1596/1813-9450-3963