Title page 1

Contents 7

Foreword 13

Acknowledgements 15

Executive Summary 17

CHAPTER 1. Introduction 25

Capital Markets Have a Growing Role in Economic Development 25

What Are the Book's Main Contributions? 30

Notes 32

References 32

CHAPTER 2. Expansion of Capital Markets Globally 34

Key Messages 34

Capital Market Activity Has Surged for Firms Both Globally and within Low- and Middle-Income Countries 35

Low- and Middle-Income Countries' Share of Global Capital Market Financing Is Rising 38

Cumulative Net Capital Issuance Has Risen Faster Than GDP 39

Firms in More Countries Are Tapping Capital Markets 42

Bonds and Equities Contribute Roughly Equal Proportions to Total Cumulative Net Capital Issuance, Except in Low-Income Countries 44

Issuance Is More Prominent in Domestic Capital Markets Than in International Markets 45

Notes 50

References 51

CHAPTER 3. Expansion of Capital Markets across Firms 52

Key Messages 52

More Firms Are Raising Financing in Capital Markets 53

"1990s Participants" and "New Participants" 54

New Participants Account for a Large Share of Cumulative Net Capital Issuance in Low- and Middle-Income Countries 57

Publicly Listed and Private New Participants Have Similar Characteristics 60

Capital Market Concentration Declined in Low- and Middle-Income Countries 63

Domestic Capital Markets Dominate for All Firms 65

Domestic Markets Are Important for First-Time Bond Issuers 67

Notes 68

Reference 69

CHAPTER 4. Economic Outcomes of Issuing Capital 70

Key Messages 70

What Are the Characteristics of New Participants before They Participated in Capital Markets? 72

What Are the Real Effects of Firms' Issuing Activity? 74

What Are the Effects of Issuance Activity on Firms' Marginal Return to Capital? 81

What Are the Effects by the Type of Instrument and Market? 83

What Are the Capital Market Activity and Aggregate Outcomes? 85

Notes 88

References 88

CHAPTER 5. Drivers of Capital Market Growth and Policy Implications 90

Key Messages 90

Understanding the Role of Capital Markets and Economic Growth 91

Growing Investable Savings 93

Implementing Pension Reforms 93

Wider Reforms Are Needed 106

What Are the Areas for Future Research? 108

Notes 110

References 111

APPENDIX A: Contribution to the Literature 113

APPENDIX B: Country and Economy Income Classifications 123

APPENDIX C: Data 126

APPENDIX D: Financial Firms 130

APPENDIX E: Global Market Capitalization Before 1990 132

APPENDIX F: Global Gross Capital Issuance 134

APPENDIX G: Currency of Issuance 136

APPENDIX H: Using 2010 as the Cutoff for New Participants 137

APPENDIX I: Market Share of New Participants across Sectors 140

APPENDIX J: Domestic Market Share in Low- and Middle-Income Countries 143

APPENDIX K: Data Sets of Firms' Issuance Activity and Balance Sheet 146

APPENDIX L: Details on the Calculation of Firms' Marginal Return to Capital 150

APPENDIX M: Dispersion in the Marginal Returns to Capital across Firms 152

APPENDIX N: Calculations of the Aggregate Effects 154

APPENDIX O: Methodology for Event Studies 157

APPENDIX P: How Firms Can Improve Their Access to Capital Market Financing 161

ABBREVIATIONS 166

Tables 12

TABLE 3.1. New Participants Constitute the Majority of Participants in Capital Markets, Regardless of Country Income Level 55

TABLE 3.2. New Participants Were Younger and Smaller and Issued Smaller Amounts Than 1990s Participants during 2000-22 56

TABLE 3.3. Both Types of New Participants Were Similar with Regard to Age, Amount of Assets, and Issuance Size in 2000-22 61

TABLE 3.4. The Size of Domestic Bond Issuance Decreased, and the Size of International Bond Issuance Increased for First-Time Bond Issuers 67

TABLE 4.1. New Participants Were Younger and Smaller and Exhibited a Higher MRK Than 1990s Participants 75

TABLE 4.2. The Effects Vary by Type of Instrument and Market 84

Figures 10

FIGURE ES.1. Firms Significantly Expanded Their Capital Market Financing in Low- and Middle-Income Countries 18

FIGURE ES.2. The Expansion of Capital Market Financing Was Associated with a Growing Number of New Issuers in Low- and Middle-Income Countries 19

FIGURE ES.3. Firms in Low- and Middle-Income Countries Exhibited Strong Growth in Physical Capital after Capital Market Issuance 21

FIGURE ES.4. Countries with Pension Reforms Experienced Higher CNI in Domestic Markets 23

FIGURE 1.1. Capital Market Financing Is Growing Faster Than Bank Financing Worldwide 26

FIGURE 1.2. New Participants Dominate Issuance Activity in Low- and Middle-Income Countries After 2000 28

FIGURE 1.3. The Conceptual Framework Connects Capital Markets with Firm Performance and Economic Outcomes 29

FIGURE 2.1. CNI for Nonfinancial Firms Grew Rapidly in 1990-2022 Worldwide and within Low- and Middle-Income Countries 36

FIGURE 2.2. Low- and Middle-Income Countries Increased Their Share of Global Capital Markets between 1990 and 2022 39

FIGURE 2.3. Growth in CNI Outpaced Growth in GDP, 1990-2022 40

FIGURE 2.4. CNI Rose for All Low- and Middle-Income Regions between 1990 and 2022 41

FIGURE 2.5. Firms in More Countries Accessed Capital Markets, and CNI Increased in Most Countries between 1990 and 2022 43

FIGURE 2.6. Bonds and Equities Accounted for Equivalent Shares of CNI in Middle- and High-Income Countries, whereas Equities Prevailed in Low-Income Countries 44

FIGURE 2.7. Domestic Capital Markets Drove the Growth of CNI between 1990 and 2022 46

FIGURE 2.8. Domestic Market Shares of CNI Rose in Low- and Middle-Income Countries 48

FIGURE 3.1. More Firms Are Issuing Capital in All Income Groups 53

FIGURE 3.2. Various Types of Firms Are Active in Capital Markets 55

FIGURE 3.3. New Participants Accounted for a Large Proportion of CNI in Low- and Middle-Income Countries 57

FIGURE 3.4. New Participants' Share of CNI Rose Substantially, Making Up the Majority of CNI across Most Regions in Low- and Middle-Income Countries 58

FIGURE 3.5. Publicly Listed and Private New Participants Accounted for Similar Shares of CNI in Countries at All Income Levels 62

FIGURE 3.6. Market Concentration Declined in Low- and Middle-Income Countries between 1990 and 2022 63

FIGURE 3.7. Domestic Capital Markets Accounted for Most of CNI 66

FIGURE 4.1. Issuance Activity Is Followed by an Increase in Sales, Physical Capital, and Employment 77

FIGURE 4.2. Firms' Real Effects of Issuance Activity Are Stronger in Lower-Income Countries Than in Middle-Income Countries 78

FIGURE 4.3. Firms' Real Effects of Issuance Activity Are Stronger for New Participants Than for 1990s Participants 79

FIGURE 4.4. Issuance Activity Is Associated with a Reduction in Firms' MRK 82

FIGURE 4.5. Effects of Issuance Activity on the MRK Are Stronger in Low-Income Countries Than In Middle-Income Countries 83

FIGURE 4.6. The Estimated Effects of Capital Market Accounts for a Significant Share of the Observed Cumulative Change (2000-22) in Capital, Employment, and Productivity 86

FIGURE 5.1. Growth of GDP and Growth of CNI Are Strongly Correlated 92

FIGURE 5.2. Countries with Pension Reforms Experienced Higher CNI in Domestic Markets 94

FIGURE 5.3. Firms in Countries That Liberalized the International Capital Account Issued More Foreign Bonds 97

FIGURE 5.4. Issuing Sovereign Bonds Has Generally Preceded Developing the Domestic Corporate Bond Market 100

FIGURE 5.5. Better Corporate Governance Standards Are Related to Higher Domestic Equity Issuances 102

FIGURE 5.6. Better Disclosure Is Correlated with More Domestic Equity Issuance 105

Boxes 9

BOX ES.1. Using the Capital Markets Portal 17

BOX 2.1. Data on CNI Facilitate an Understanding of Capital Markets Worldwide 37

BOX 4.1. Measuring Firm Characteristics 73

BOX 5.1. Brazil's Novo Mercado Stock Exchange 103

Maps 12

MAP 2.1. Firms in 32 More Middle-Income Countries and in 13 More Low-Income Countries Entered Capital Markets between 2000 and 2022 42

Appendix Tables 12

TABLE B.1. Countries, Economies, Special Regions, and Territories Examined in the Book 124

TABLE G.1. Currency of Issuance Is Closely Tied to the Market of Issuance 136

TABLE K.1. How do the Securities Data Company Platinum and Worldscope Data Sets Describe Firms and Their Activity in Capital Markets? 148

Appendix Figures 11

FIGURE C.1. The Securities Data Company Platinum from LSEG Provides Accurate Data for Corporate Bond Markets from 2000 to 2022 127

FIGURE D.1. Financial Firms Have Typically Held a Minority Share of CNI, Depending Heavily on New Bond Debt 131

FIGURE E.1. Global Stock Market Capitalization Grew in the 1980-90 Period 133

FIGURE F.1. Gross Capital Issuance, Primarily New Bonds, Has Grown Globally 135

FIGURE H.1. New Participants Account for a Large Proportion of CNI in Low- and Middle-Income Countries Regardless of the Cutoff Year Used 138

FIGURE I.1. New Participants' Share of CNI Increased across All Economic Sectors 141

FIGURE J.1. Domestic Market Share Rose in Low- and Middle-Income Countries and Fell for New Participants in High-Income Countries 144

FIGURE O.1. The Placebo Test Validates the Findings for Pension Reform 159

FIGURE O.2. The Placebo Test Validates the Findings for Liberalization Episodes 160