We try to explain stock market development and the trends towards
internationalization, including differences among countries, by investigating the role of
country and international factors. We use several groups of explanatory variables. We
use the overall level of development of the country, as captured by GDP per capita and
size of its economy. For macroeconomic performance, we use the inflation rate. For the
quality of the institutional framework, we use the law and order index, as reported by the
Country Risk Guide, and the strength of shareholders rights, as reported by La Porta,
Lopez-de-Silanez, Shleifer, and Vishny (1998) and Pistor, Raiser, and Gelfer (2000). For
ease of foreign ownership in the stock market, we use the measure of capital account
liberalization reported by the IMF'0 and the index of financial liberalization constructed
by Kaminsky and Schmukler (2001)." Finally, we use a variable related to the trading
system in the country, namely trading commissions and trading fees. The explanatory
data are described in more detail in Appendix Table II.