Independent University, Bangladesh

A Banking and Finance Assignment

On
(Difference between the capital market of a developing and developed country)

Prepared For:
Ms. Zaima Ahmed
Lecture, School of Business
Department of Finance
Independent University, Bangladesh (IUB)
Prepared By:
Md. Neaj Morshed
ID: 1430608

Course Title: Banking and Finance

Course ID: FIN-401
Section: 01
Date of Report Submission: 30th November, 2017
 Table of Contents

Content Page no.

Introduction 01
Capital market evolution 02
Definition of Developed Countries 03
Definition of Developing Countries 04
Key Differences between Developed and 05
Developing Countries
Identifying two countries why they are
developed and developing:
Develop country (Canada) 05-08
Developing Country (Bangladesh). 08-11

Conclusion 12
Reference 13
 Difference between the capital market of a developing and
developed country
Introduction:
What exactly is the difference between the developments of different countries?? What makes a
country poor and a country rich. Is it due to mankind existing there or any lack of financial system
or something else? Or by nature.

In a typical developed country there is a multitude of financial services enabling people to make
payments; borrow at reasonable interest rates; save for retirement; and limit economic risks
through insurance. These services are provided by various institutions acting in a complex network
of regulations and relationships that together make up the financial system. From a macroeconomic
perspective, this system allows efficiency through decreased transaction costs, allocation of
resources to productive use in enterprises and infrastructure, and the pooling of risks. (Obstfeld,
2004).

In developing countries, however, the situation is often quite different. The financial system is less
developed and financial services are less widely available or of much poorer quality. An
entrepreneur wanting to grow his business may not be able to raise capital; a worker may not be
able to earn interest on her pensions savings; investors have disincentives to invest capital due to
high transaction costs or high risks. Such an economic environment has negative consequences for
the individual, but also for the country as a whole. (Baronov 2004).

The classification of countries is based on the economic status such as GDP, GNP, per capita
income, industrialization, the standard of living, etc. Developed Countries refers to the
sovereign state, whose economy has highly progressed and possesses great technological
infrastructure, as compared to other nations.

The countries with low industrialization and low human development index are termed as
developing countries. Developed Countries provides free, healthy and secured atmosphere to live
whereas developing countries, lacks these things.

After a thorough research on the two, I have compiled the difference between the capital market
developed countries and developing countries considering various parameters.

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Capital market evolution
From the capital users point of view the capital market development lifecycle can be characterized
by the sources of capital available. The first capital used to start a business is often personal, or
possibly a micro credit when such is available hence there is no need to use the capital market.
Later, a successful entrepreneur may use bank loans to expand his business. But at some stage of
business development it may be more favorable for the capital user to turn to the capital market in
order to grow the business. In comparison to bank loans, the capital market could provide capital
at lower cost (through bond issues) or in larger volume (through share issues) than would be
possible with bank credit alone. This can be seen as a big step, especially if ownership rights and
company control are a worry to the entrepreneur. It requires familiarity with the capital market,
and a bond issue can be a natural first step to test using the capital market before spreading
ownership through a share issue.

In early stages of development of the capital market the exchange is usually not a profit making
entity simply because there are small revenues from trading, listing or membership fees. In some
developed economies the capital markets developed slowly and naturally. In England for example,
different forms of government bonds were traded in natural meeting places, such as coffeehouses,
for more than a century before the business was organized into the member-owned Stock Exchange
in 1801 (The Economist, 2005). Countries wishing to speed this process up have created similar
institutions from above, with government funds or foreign aid (such as the US Aid project that
assisted the formation of the member-owned, non-profit Georgian Stock Exchange in 1999 (GSE,
2005).

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Definition of Developed Countries
Developed Countries are the countries which are developed in terms of economy and
industrialization. The Developed countries are also known as advanced countries or the first world
countries, as they are self-sufficient nations.

Human Development Index (HDI) statistics rank the countries on the basis of their development.
The country which is having a high standard of living, high GDP, high child welfare, health care,
excellent medical, transportation, communication and educational facilities, better housing and
living conditions, industrial, infrastructural and technological advancement, higher per capita
income, increase in life expectancy etc. are known as Developed Country. These countries
generate more revenue from the industrial sector as compared to service sector as they are having
a post-industrial economy.

Factors of Developed country:

Better standard of living

Rate of unemployment is low
High Gross Domestic Product (GDP) per capita
Heavy emphasis on health
Heavy emphasis on education
Low Infant Mortality Rate (IMR)
High Per Capita Income

Some developed countries:

Australia Japan
Canada Norway
France Sweden
Germany Switzerland
Italy United States

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Definition of Developing Countries
The countries who are going through the initial levels of industrial development along with low
per capita income are known as Developing Countries. These countries come under the category
of third world countries. They are also known as lower developed countries.

Developing Countries depend upon the Developed Countries, to support them in establishing
industries across the country. The country has a low Human Development Index (HDI) i.e. the
country does not enjoy healthy and safe environment to live, low Gross Domestic Product, high
illiteracy rate, poor educational, transportation, communication and medical facilities,
unsustainable government debt, unequal distribution of income, high death rate and birth rate,
malnutrition both to mother and infant which case high infant mortality rate, poor
living conditions, high level of unemployment and poverty.

Factors of Developing country:

Rate of employment is low

Low Gross Domestic Product (GDP) per capita
Poor health care
Poor education
High Infant Mortality Rate (IMR)
Low or medium Per Capita Income

Some developing countries:

Bangladesh Sri Lanka
China Kenya
Colombia Thailand
India Turkey
Pakistan U.A.E

Even in developing countries there are cases where one moves at a rapid pace to get Developed
country recognition (China) and the other which moves at a snail pace to get the same (India,
Bangladesh ).

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 Key Differences between Developed and Developing Countries

The countries which are independent and prosperous are known as Developed Countries. The
countries which are facing the beginning of industrialization are called Developing Countries.
Developed Countries have a high per capita income and GDP as compared to Developing
Countries.
In Developed Countries the literacy rate is high, but in Developing Countries illiteracy rate is high.
Developed Countries have good infrastructure and a better environment in terms of health and
safety, which are absent in Developing Countries.
Developed Countries generate revenue from the industrial sector. Conversely, Developing
Countries generate revenue from the service sector.
In developed countries, the standard of living of people is high, which is moderate in developing
countries.
Resources are effectively and efficiently utilized in developed countries. On the other hand, proper
utilization of resources is not done in developing countries.
In developed countries, the birth rate and death rate are low, whereas in developing countries both
the rates are high.

Identifying two countries why they are developed and developing:-

Develop country (Canada)
Developing Country (Bangladesh).
Develop country (Canada)
Ample resources, minimal public debt and a solid financial system make Canada a paradigm of
sound economic practice. All this has helped Canada post the strongest GDP performance in the
developed world. While a US slump inevitably impacts trade for its neighbor to the north,
employment in Canada is nearly back to pre-recession levels, proof of its resilient economy.
Canadas economy has consistently outperformed that of the United States since the beginning of
the financial crisis. And while its showing signs of slowing down, Canadas pending decline will
be far shallower than that of the United States, and its rebound more dynamic.

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Canadas gross domestic product (GDP) expanded by 6.1% in the first quarter of the year the
highest rate of growth among developed nations and the country is expected to lead Group Seven
(G7) nations in economic growth for at least the next two years.
The reasons are many:
Canadas banking system is sound.
It has a generous bounty of resources.
Its economy is more service-based than its been in years past.
Corporate interests have less influence over government policy.
And it has far less government debt.
Suddenly, Canada is being held up as a shining light of sobriety, daring, common sense, and
strong returns, says Money Morning Contributing Writer Jon D. Markman. It largely
sidestepped the entire global financial crisis of the past four years because its highly regulated
banks were prohibited from securitizing mortgage debt to the extent that was widely practiced in
the United States. Its banks also were banned from taking on high levels of leverage to make larger
and riskier loans.

Already, Canada has recouped 403,000 jobs, or 97% of those lost in the recession. Employment
rose by 93,200 in June a number five-times greater than economists had expected following a
gain of 24,700 in May and a record-high surge of 108,700 in April.
By comparison, the United States, which has a population 10-times larger than Canadas, only
added 83,000 jobs in June. And if you factor in the loss of 225,000 temporary Census jobs, the
United States actually lost 125,000 jobs. Worse, if you include discouraged workers who havent
looked for a job in the past four weeks, the U.S. labor force has shrunk by 974,000 in the past two
months alone.

Canadas unemployment rate slid to 7.9% in June compared to 9.5% in the United States.

Businesses are confident in our recovery and are hiring, Benjamin Reitzes, an economist
at BMO Capital Markets told Bloomberg. That should get the ball rolling on growth from
a private sector perspective.

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Indeed, Canada has already begun the process of reigning in its stimulus measures. The Bank of
Canada (BOC) raised its key interest rate a quarter of a point to 0.75%. That was the second such
high in as many months.

However, the BOC also lowered its growth forecast for the next two years, citing persistent
weakness in the global economy. The central bank said the Canadian economy would expand by
3.5% in 2010, 2.9% in 2011, and 2.2% in 2012. The BOC predicted in April that the economy
would grow 3.7% in 2010 and 3.1% in 2011 and 1.9% in 2012.

The bank noted that economic activity in Canada is unfolding largely as expected, but the global
economic recovery is not yet self-sustaining.

Greater emphasis on balance sheet repair by households, banks, and governments in a number of
advanced economies is expected to temper the pace of global growth relative to the Banks outlook
in its April Monetary Policy Report (MPR), the central bank said. While the policy response
to the European sovereign debt crisis has reduced the risk of an adverse outcome and increased the
prospect of sustainable long term growth, it is expected to slow the global recovery over the
projection horizon. In the United States, private demand is picking up but remains uneven.

Indeed, the loss of growth momentum in the United States is expected to drag on Canadas
economy in the second half albeit less than it would have in the past. Thats because Canada,
while it has become more service-based, still relies on the United States as an export market.

With the U.S. market less willing to absorb its exports, Canada reported its third straight monthly
trade deficit in June. The deficit of $487 million (C$503 million) was the largest in eight months,
according to Statistics Canada. Trade will shave 0.8 percentage points off of Canadas economic
growth this year, according to the BOC.

Canadas housing market and consumer spending are also believed to have peaked. Still, Canadas
economy should widely outpace the United States, which is facing the possibility of a double-dip
recession.

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Were not calling for a double-dip by any means, said Sal Guatieri, an economist Bank of
Montreal, which believes the Canadian economy expanded by 2% in the second quarter.

For one thing, Canadas strong fiscal position gives policymakers added flexibility. The countrys
fiscal shortfall this year is projected at $33 billion, comfortably below 3% of total GDP. That
compares to a $1.35 trillion budget deficit for the United States, which is equivalent to 9.2% of
GDP.

The last two U.S. recessions are solid proof that Canada is now better able to withstand strong
headwinds from the south, said Jimmy Jean, an economist at Moodys Corp. (NYSE: MCO)
Not that theyve decoupled altogether, but should a downside mild double-dip recession
materialize, Canadas recovery would very likely survive.

Developing Country (Bangladesh)

Bangladesh is a developing country. In fact Bangladesh is under developing country. Still we
behind from our neighbor country. The International Monetary Fund uses a flexible classification
system that considers "(1) per capita income level, (2) export diversification and (3) degree of
integration into the global financial system.

In IMF World Economic Outlook Report, April 2015 Bangladesh was listed as a Developing
Country because Bangladesh fulfilled the criteria.

Since 2016 the World Bank no longer divide countries into two groups according to the outdated
concept of developed and developing. Because there is some criticism of the use of the term
"developing country". The term implies inferiority of a "developing country" or "undeveloped
country" compared with a "developed country", which many countries dislike. It is criticized for
being too positive and too negative. It rather classifies countries into four income groups. These
are set each year on July 1.

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Economies were divided according to 2016 GNI per capita using the following ranges of income:
Low income countries had GNI per capita of US$1,025 or less.
Lower middle income countries had GNI per capita between US$1,026 and US$4,035.
Upper middle income countries had GNI per capita between US$4,036 and US$12,475.
High income countries had GNI per capita above US$12,476.
The GDP per Capita, in Bangladesh, when adjusted by Purchasing Power Parity is equivalent to
18 percent of the world's average. GDP per capita PPP in Bangladesh averaged 1939.73 USD from
1990 until 2015, reaching an all-time high of 3136.60 USD in 2015 and a record low of 1290.40
USD in 1990.Which makes it a Lower middle income country.

So it is not possible to make change Bangladesh overnight. But if we can take and do some
pragmatic job step by step than it will possible to transform Bangladesh into a progressive
country. As a Bangladeshi civilian we should do it. Bangladesh is one of the few developing
countries that is on target for achieving most of the Millennium Development Goals, and is
considerably ahead of target on some indicators.

These are among the fastest improvements in basic living condition ever seen in history, and they
took many observers by surprise because Bangladeshs achievements so far do not exactly fit into
the typical pathways of human and social development. The Indian economist Amartya Sen, for
example, distinguishes between income-mediated and support-led pathways to human
development. The first is characterized by improvements in social indicators that can be traced
back to rapid- and broad-based economic growth (exemplified by Korea), while the second is
based on high public spending on welfare programs (as in Sri Lankas case). Neither is clearly
applicable to Bangladesh. The economic growth rate rose significantly after 1990, but it only
reached 6 percent in 2004, and has never exceeded 7 percent. Furthermore, spending on education
and healthcare (2.2% and 3.5%, respectively, of GDP in 2012) is below the average for low-income
countries.
Thus, although the improvement in Bangladeshs growth rate since 1990 is impressive, it does not
fully explain the countrys extraordinary results with regard to social development. Several other
countries in South and Southeast Asia have grown at similar or higher rates than Bangladesh in
the last 10 to 15 years, including India, Bhutan, Vietnam, Cambodia, and Laos. Yet, in comparison
to these countries, Bangladeshs social development still stands out.

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Development experts have explained this discrepancy by attributing Bangladeshs social
development to the success of innovative, low-cost solutions such as microfinance programs that
target women, massive social mobilization campaigns spearheaded by NGOs like BRAC, the
success of the labor-intensive, export-based garments industry, and the boost to earnings and
human capital provided by labor migration and inward remittances. Also we have to keep eyes and
make improve must those are show in below:-
Education:
Education is the backbone of a nation. There is no single country developed without education. In
Bangladesh many people are uneducated. To build Bangladesh as a 100 percent educated country.
Increase GDP growth:
The growth of GDP in the current fiscal year which is estimated to be 7.28 percent is significantly
higher than previous years growth. But the deceleration in growth is still satisfactory compared
to many countries in Asia. We have to more productive than we increase growth rate of GDP. So
make a progressive as Bangladesh we must increase GDP growth.
Control inflation:
In 2017, the inflation reached a high of 5.72 percent on a point to point basis. However, it is
heartening to note that there has been a downward trend of inflation in Bangladesh of late. We
have to bear in mind that there exists a high inflationary trend across the world, including our
neighboring countries. The Government has been implementing different measures to curb
inflation. Lowering of interest rate against import credit of food grains, regular monitoring of
markets, and fixation of maximum retail price for edible oil. So this is most important thing we
have to control inflation with hardly.
Capital Market:
Government has started the process of off-loading the shares of a number of State Owned
Enterprises from the energy, telecommunication and industrial sectors in the capital market. It is
expected that this initiative would positively contribute to employment generation and
industrialization in the country.

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Stop corruption:
We have to stop corruption at first, without it we cannot be a progressive country. Mostly our
political leader are doing this very much. Role and police commission who maintain our country
they are not out of this boundary. We are the champion five times for this. This is not positive sign
for a country, so we like prothom alo slogan we have to say Bodle gao, bodle dao.

Labor Force:
Occupationally, 75 percent of the civilian labor force, which is currently estimated at 56 million,
is directly or indirectly engaged in agriculture. Only 12 percent is engaged in industry.
Unemployment is estimated at around 4.10 percent 2016 and still unchanged. In terms of age
structure, it is more youthful than in the western countries. Heavy pressure of population on scarce
land has no doubt created an extremely unfavorable land-man ratio.

Employment
Employment is a contract between two parties, one being the employer and the other being the
employee. An employee may be defined as: A person in the service of another under any contract
of hire, express or implied, oral or written, where the employer has the power or right to control
and direct the employee in the material details of how the work is to be performed. Economic
growth (rise in GDP) is always deemed to be desirable as an outcome. Economic growth means
more output, employment, income and, in consequence, more wellbeing for the people. That is
why most nations strive to reach the higher growth path. Economists used to worship growth
once, till they realized that growth could not be an end in itself; it was a means to an end. In other
words, economic growth is necessary but not sufficient for peoples welfare

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Conclusion:
After finishing the report one thing I understand that big countries who are developed always try
to help and encouraged the developing country to grow up. Developing country like we always
rely on other big countries to help us out, this is not right for us because we reach to that destination
where developed country gone we have to developed our mind skill, resources, man power,
education, financial market, economic welfare and so on. Dont wait for others always look
forward with our own resource because only we know how to use our resource to improve our
nation, to reach our goal. Developed country only help us only for their beneficial needed that why
developing country like us have to improve our all sector. In recent year we can see Resistance to
globalization in the developed world now that developing countries finally themselves globalizing
and growing, is bound at best to slow down the progress that is finally being made in the
developing world. So we can say that if we believe one day we will becoming the top developed
country, yes we can. Our government should take step to do something to reach the final
destination with every one of our country people than it can be done with no time. I wish one day
will come to say that our country is also a developed country.

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References
Sen, A. (1976). Poverty: an ordinal approach to measurement. Econometrica: Journal of
the Econometric Society, 219-231.
http://www.jstor.org/stable/1912718?seq=1#page_scan_tab_contents [Accessed 15
March, 1976]
Vanderhart, P. G. (2003). The Bank of Canada's Reaction Function. American Review of
Canadian Studies, 33(3), 357-371.
http://www.tandfonline.com/doi/abs/10.1080/02722010309481162?journalCode=rarc20
[Accessed 11 Nov, 2009]
Obstfeld, M., & Taylor, A. M. (2004). Global capital markets: integration, crisis, and
growth. Cambridge University Press.
https://books.google.com.bd/books?hl=en&lr=&id=R0U18XhRK1MC&oi=fnd&pg=PR1
1&dq=related:a8dxlE9O6uwJ:scholar.google.com/&ots=swxQUpVE5J&sig=lYbBnc3pS
3KA37B7Csy0b3aqlXQ&redir_esc=y#v=onepage&q&f=false [2004]
http://www.nuwireinvestor.com/why-canada-is-leading-developed-countries-in-
economic-recovery/ Benjamin Reitzes, an economist at BMO.
https://moneymorning.com/2010/07/21/canadas-economy/ Money Morning Contributing
Writer Jon D. Markman
http://www.nuwireinvestor.com/why-canada-is-leading-developed-countries-in-
economic-recovery/ Jimmy Jean, an economist at Moodys Corp
http://www.imf.org/external/np/sec/aiv/index.aspx?listby=y

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