Institutional Determinants of Neoliberal Policies: A Cross-national Analysis of the Effects of Political Institutions on Stock Exchange Adoption

Diffusion research has clearly demonstrated that international processes are responsible for widespread adoption of neoliberal policies but retained a limited grasp of internal factors that enhance or undermine the ability of countries to adopt diffusing models. This shortcoming gave us an opportunity to examine the effects of political institutions on policy adoption to expand the range of potentially important domestic factors for policy differences. In this regard, we emphasized the roles that the states could play in providing policy directions for countries depending on their ability or willingness to ensure judicial independence, demonstrate capacity, and promote democracy. Specifically, stock markets provided an appropriate setting for this study as the spread of this model in the past several decades has been rapid but not as ubiquitous. Accordingly, we advanced a number of hypotheses concerning the impacts of judicial independence, state capacity, and democracy on stock exchange adoption. The results from survival models using data for as many as 92 countries between 1980 and 2017 generally supported our hypotheses. The study found that not only do independent effects of all three political institutions help explain the establishment of a country’s first stock exchange but also the interrelationship between judicial independence and state capacity through a mediational process. Our main contribution is to establish that judicial independence, state capacity, and democracy are central to better understanding the roles that the states play in determining whether the reforms advocated by the international community are introduced at the national level.