Global Capital Access Index 2003 - Governance and Growth: The European Challenge
Apr 01, 2003
James R. Barth, Donald McCarthy, Triphon Phumiwasana, Susanne Trimbath and Glenn Yago

Each year, the Milken Institute Capital Access Index (CAI) scores the ability of entrepreneurs to gain access to financial capital in countries around the world.

The term "entrepreneur" is broadly construed to include innovators, managers and owners in need of capital to start a new enterprise, expand a promising line of business, or restructure a large multi-industry firm. The CAI measures not only the breadth, depth and vitality of capital markets, but also openness in providing access without discrimination.

Thus, the CAI also measures global progress in the democratization of capital.

One year after a relatively upbeat assessment of the global trend to more open capital markets, the 2003 Capital Access Index (CAI) finds the world a more difficult place, with about as many countries scoring higher (42) as lower (39) than their ranking in 2002. Hong Kong, the United Kingdom and the United States remain numbers one, two and three in the ranking.

The deterioration of the world economy, instability in the overall financial sector and added uncertainty brought on by the threat of war and terrorism, adversely affected access to capital across the globe. A multi-year downturn in financing deeply affected many developing countries.

The most striking change from last year's Capital Access Index is the dramatic decrease in Argentina's score - dropping 23 places, from 45th in 2002 to 68th this year, out of 89 countries.

The focus of this year's Index, however, is Europe. The combined GDP of Europe is the second largest in the world - more than 30 percent of the world's economy - nearly exceeding that of the U.S. Nine of the members of the EU are ranked in the top 20 countries for capital access. Despite efforts to encourage markets and market efficiency in Europe, problems persist in the development of market-based solutions for access to capital.

The task ahead for member countries is to find other ways to cut investor costs and to raise market efficiency.