Why domestic capital markets can benefit developing countries: the case of East Asia

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During the past decades, firms from emerging economies have significantly increased the amount of financing obtained in capital markets. Whereas the many discussions center on why international markets have been an important contributor to this process, the role of domestic markets is mostly unknown. By examining the case of East Asia, “The Rise of Domestic Capital Markets for Corporate Financing,” the report shows that domestic markets have been a key driver of the observed trends in capital market financing since the early 2000s.

Here are 5 reasons why domestic capital markets can be good for developing countries.

  1. Domestic markets are the main place where issuance activity takes place.
  2. As domestic markets have developed, more firms have gained access to equity and corporate bond financing.
  3. Domestic capital markets have the advantage that they attract more and smaller firms than international markets.
  4. Domestic markets have also helped some corporations to diversify funding sources and obtain domestic currency financing.
  5. Access to different markets allows the largest issuers to mitigate negative shocks in one market by raising more funds in other markets.

These reasons are based on the analysis of a broad range of economies in the region and are driven by China or other particular countries. For more detailed analysis view the recently published paper, “The Rise of Domestic Capital Markets for Corporate Financing,” co-authored with Facundo Abraham and Juan Jose Cortina.

Authors

Ana Maria Aviles

Senior Financial Sector Economist

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