The Development of Local Capital Markets: Rationale and Challenges

26 Pages Posted: 6 Feb 2015

See all articles by Luc Laeven

Luc Laeven

European Central Bank (ECB); Centre for Economic Policy Research (CEPR)

Date Written: December 2014


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.

Keywords: Capital market development, Emerging markets, Capital markets, Bond markets, stock markets, economic development, financial markets., local market, finance, risk sharing, investment, monetary fund, macroeconomic conditions, investment capital, equity, fiscal deficits, financial systems, global market, capital flows, local markets, globalization, international capital, financial development, capital account, domestic capital, government interventions, capital allocation, market economies, capital inflows, market size, inventories, capital investment, equity markets, good, exchange, macroeconomic policies, financial infrastructure, domestic capital market, emerging market economies, exchange r

JEL Classification: E22, F65, G10, O16

Suggested Citation

Laeven, Luc A., The Development of Local Capital Markets: Rationale and Challenges (December 2014). IMF Working Paper No. 14/234, Available at SSRN:

Luc A. Laeven (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

Centre for Economic Policy Research (CEPR)

United Kingdom

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