Capital Market Benefits, Evolution, and Reform

Abstract

Capital markets deal with the purchase and sale of long-term debt securities and equities or stocks of shares in companies. In most developing countries, the sale of debt securities has been dominated by the government, with domestic commercial banks and nonbank financial institutions, such as insurance, trust and investment companies, being the principal purchasers. Until recently, the governments and central banks in developing countries paid very little attention to the potential economic benefits of equities as a source of business finance. With the effective implementation of financial reform policies in some countries, the regime of negative real interest rates, conducive to bank credit as a principal source of business finance, was largely abandoned and the dominant role of private-sector companies in economic activities was emphasized.