The development of local capital markets: rationale and challenges

Abstract

wp/14/234 the development of local capital markets: rationale and challenges luc laeven © 2014 international monetary fund wp/14/234 imf working paper research department the development of local capital markets: rationale and challenges prepared by luc laeven1 authorized for distribution by stijn claessens december 2014 this working paper should not be reported as representing the views of the imf. the views expressed in this working paper are those of the author(s) and do not necessarily represent those of the imf or imf policy. working papers describe research in progress by the author(s) and are published to elicit comments and to further debate. abstract capital markets can improve risk sharing and the efficiency with which capital is allocated to the real economy, boosting economic growth and welfare. however, despite these potential benefits, not all countries have well developed capital markets. moreover, government-led initiatives to develop local capital markets have had mixed success. this paper reviews the literature on the benefits and costs of developing local capital markets, and describes the challenges faced in the development of such markets. the paper concludes with a set of policy recommendations emerging from this literature. jel classification numbers: e22, f65, g10, o16 keywords: stock markets, bond markets, capital market development, economic development, financial markets. author’s e-mail address: llaeven@imf.org 1 luc laeven is lead economist in …

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