Capital Markets in Developing Countries: The State of Play

Economists have repeatedly demonstrated a relationship between financial sector sophistication and economic growth. While developing countries have often emphasized establishing a sound banking sector, as economies grow and become more sophisticated, capital markets are increasingly important for providing the long-term capital that firms need to invest and expand. Deep, liquid capital markets channel domestic savings into projects and companies based on market principles, not political motives.

Across developing regions, businesses have identified access to finance as the largest barrier to their success. According to the World Bank's Enterprise Survey, this concern outweighs corruption, access to electricity, political instability, and tax rates, suggesting capital-market development merits greater attention among policymakers.

This report briefly surveys recent capital market activity in developing countries. It focuses on the experiences of three regions in particular: Southeast Asia, Latin America, and Sub-Saharan Africa. Included are sections that examine developments in public equity markets, private equity, bond markets, and efforts to integrate capital markets at the regional level.