The Rise of Domestic Capital Markets for Corporate Financing: Lessons from East Asia

During the past decades, firms from emerging economies have significantly increased the amount of financing obtained in capital markets. Most of the literature has focused on issuances in international markets, which appear to have been a key driver of the overall activity in a context of financial globalization. This paper explores whether domestic issuances have also played a role in this increase in financing. By examining the case of East Asia, which captures most of the capital raisings among emerging economies, this paper shows that domestic issuances have been the main component of the overall expansion in capital market financing since 2000. As domestic markets developed, more and smaller firms accessed capital markets, while larger corporations increased their funding sources and their resilience to international shocks. The experience of East Asia shows that domestic capital markets can play a useful role and that numerous policies might aid in their development.