Glenn Yago (VOA photo - M. O'Sullivan)

Hong Kong may be the best place for entrepreneurs who want to start a business, according to a study by the Los Angeles Milken Institute in Santa Monica, California. The United States has dropped from first to third place in the ranking of the openness of global capital markets. Britain ranked number two. The study also notes a growing disparity between the developed and developing worlds.

The annual index uses 54 measures to rate a country's financial system, including the availability of credit, the cost of borrowing, efficiency of regulations and transparency in accounting.

Susanne Trimbath (VOA photo - M. O'Sullivan)

The United States, which is recovering from a recession, dropped to third place because of reduced funding by venture capitalists, a decline in initial public offerings, and a drop in foreign investment. The Enron scandal, sparked by the energy company's use of accounting tricks to conceal its shaky condition, also hurt the U.S. score, according to Glenn Yago, director of capital studies for the nonprofit institute. "The U.S.," he said, "was faulted somewhat this year in terms of some of the accounting transparency and issues that were there, though the U.S. still maintains a very high level of capital access."

The economist says keen oversight by the U.S. Federal Reserve, the country's central bank, has kept the money flowing. The so-called "Fed" has pushed down interest rates in response to threats of inflation.

Hong Kong ranked number one in the study because it has lessened its concentration of bank assets and reduced the volatility of its markets. The economist says the enclave offers a story of recovery. "After the Asian crisis," Mr. Yago said, "Hong Kong fell quite dramatically. I think the emergence of its role within China, also having been able to work through problems in financial institutions and property markets there, it's retained a very strong position."

Research economist Susanne Trimbath said more countries declined than improved in this year's ranking. She says the countries that dropped two years in a row are no surprise, including nations like Argentina that have financial difficulties. She said, "Argentina, Venezuela, their scores went down two years in a row. Also, Ecuador's score didn't change. It's relatively stable, but it's been in a bad area [of the chart], so their score, on a scale of one to seven, they're about a three-and-a-half in terms of capital access."

Poland, which ranks 38th on the index, has improved its score for capital access two years in a row, along with other countries in Eastern Europe. So did Honduras, South Korea and Uruguay.

Economist Glenn Yago said this is a difficult time for developing countries, which are losing money through a negative capital flow. He notes the title of this year's report is "Missing Markets." "When you have missing markets," he continued, "there's not the ability to distribute credit or access to capital more broadly. You also have a problem of missing classes. And that's really what we have. We have a period of time now where the developed world is growing at a faster rate and leaving the developing world further and further behind."

And within developing countries, the economist says income disparities are becoming severe. He says this adds to social tensions and contributes to instability and even terrorism. Mr. Yago said, "All of these, I think, whether we're talking about the backlash against globalization or the events of 9-11 [terrorist attacks of September 11], get refracted in the kind of difficulties and instabilities we're seeing politically, be they in the Middle East, be they in Latin America."

There were surprises on this year's list from the Milken Institute. Portugal ranked higher than France in providing freer access for entrepreneurs to capital. The report says financial markets in South Africa and Chile are more open than that of Italy. Less surprising is China's improvement; the developing Asian nation jumped from 42nd place to 35th on the list on the list of global financial markets.

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