Publication:
Whither Latin American Capital Markets?

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Date
2004-10
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2004-10
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De La Torre, Augusto
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Abstract
In this study, the authors analyze where we stand and where we are heading on capital market development. More specifically, this study has three main goals. First, the authors take stock of the state and evolution of Latin American capital markets and related reforms, over time and relative to other countries. Second, authors analyze the factors driving the development of capital markets, with particular interest on measuring the impact of reforms. Third, in light of this analysis, authors discuss the prospects for capital market development in Latin America and emerging economies in general, and the implications for the reform agenda going forward. To understand the state and future of capital markets in developing countries, the report consists of three additional chapters. Chapter two documents the main developments in international financial markets and the increasing globalization process. The chapter also describes the influence of these worldwide trends on Latin America, with particular attention to the effects on the policies and reforms adopted. Chapter three evaluates the factors behind the development (or lack of development) of capital markets. The chapter first studies how different macroeconomic and institutional variables affect the development of domestic stock and bond markets and their internationalization. The second part of chapter three analyzes the effects of reforms on capital markets. The chapter finishes by examining whether the experience of Latin America is similar to that of other regions. Finally, chapter four discusses the future of capital markets in developing countries, the policy implications, and the lessons for the reform agenda.
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De La Torre, Augusto; Schmukler, Sergio L.. 2004. Whither Latin American Capital Markets?. © World Bank. http://hdl.handle.net/10986/25933 License: CC BY 3.0 IGO.
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    Whither Latin American Capital Markets?
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    Over the past decades, many countries have implemented significant reforms to foster capital market development. Latin American countries were at the forefront of this process. The authors analyze where Latin American capital markets stand after these reforms. They find that despite the intense reform effort, capital markets in Latin America remain underdeveloped relative to markets in other regions. Furthermore, stock markets are below what can be expected, given Latin America's economic and institutional fundamentals. The authors discuss alternative ways of interpreting this evidence. They argue that it is difficult to pinpoint which policies Latin American countries should pursue to overcome their poor capital market development. Moreover, they argue that expectations about the outcome of the reform process may need to be revisited to take into account intrinsic characteristics of emerging economies. The latter may limit the scope for developing deep domestic capital markets in a context of international financial integration.
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