The market is a mechanism that coordinates the behavior of buyers and sellers participating in the process of buying and selling goods and services. In other words, a market is a place where supply and demand meet. The market can be analyzed from many angles. One of the criteria for distinguishing the market is the criterion according to geographical coverage, from which one can distinguish the local market, global market, domestic market, and the international market.
The local market is limited to a small territory and has certain restrictions such as limited reach, taking care of direct contacts with customers and suppliers, products and services should be tailored to the needs of society, precise selection of advertising to reach as many people as possible.
According to Mr. Luc Laeven, the development of the local market is affected by the sustainment of specific policy on the market. It's mainly about privatization, liberalism or safer private property rights (Mr. Luc Laeven, 2014, s.14).
Factors positively influencing the development of local markets
„When using the sum of the market capitalization of equity, private bonds, and public bonds divided by GDP as proxy for a country’s local market development, we find that private enforcement of securities laws, shareholder rights and the enforcement of debt contracts continue to be positively associated with local market development even after controlling for the level of economic development and average inflation rate in the country. Moreover, we find that the size of the domestic banking system continues to be positively associated with local market development after controlling for per capita income and inflation. […] These findings suggest that legal and institutional environment exerts an independent influence on local market development over above the macroeconomic conditioned in the country.” (Mr. Luc Laeven, 2014, s.14).
Factors contributing to the weak position of local markets
Among the factors affecting the weakening of the position of local markets we distinguish (the United States. Department of Agriculture. Production and Marketing Administration. Cotton Branch s. 72 ):
- „The inefficient organization of numerous local markets
- Indifference or lack of understanding on the part of many growers with respect to marketing
- Opposition by some marketing agencies with regard to changes in market organization and procedure”
The state of development
„Three key dimensions of market development (Mr. Mangal Goswami, Mr. Sunil Sharma, 2011, s.13) :
- The hurdles confronting players and institutions that are or could be borrowers an lenders
- The issues faced by current and potential liquidity providers, and
- The presence or absence of supportive government policies and regulations”
Challenges of building local markets
As per Mr. Luc Laeven, one can distinguish the main challenges related to building local markets, i.e. time and a sustained and broad political consensus (Mr. Luc Laeven, 2014, s.12). Significant impact on the development of the local market by dealing with political risk and gaining investor confidence may be the fact that the maintenance of market policies, such as privatization and liberalization programs, sets the main test of political engagement for safer private property rights. The introduction of market policies are often reversed or initially unreliable (Mr. Luc Laeven, 2014, s.12).
- Goswami M., Sharma S., (2011),The Development of Local Debt Markets in Asia, International Monetary Fund Working Paper, Washington
- Leaven L. (2014), The Development of Local Capital Markets: Rationale and Challenges, International Monetary Fund Working Paper, Washington
- Marketing of Cotton in Producers' Local Markets, (1949), Production and Marketing Administration. Cotton Branch, Washington
Author: Łukasz Gil