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Domestic Capital Market Reform and Access to Global Finance: Making Markets Work

  • Peter Blair Henry
  • Peter Lombard Lorentzen

Contrary to the predictions of standard economic theory, capital market liberalization has been a mixed blessing for many countries. Liberalization of debt inflows exposes economies to the risk of crises stemming from sudden changes in investor sentiment. Equity market liberalizations, on the other hand, have promoted growth in almost every liberalizing country. Yet equity market liberalizations have not had as strong an effect as might be expected. To convince outsiders to invest, countries must put in place laws and supporting institutions to protect the rights of minority shareholders. Countries with such protections tend to have larger, more efficient, and more stable stock markets than those that do not.

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File URL: http://www.nber.org/papers/w10064.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10064.

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Date of creation: Nov 2003
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Publication status: published as Litan, Robert E., M. Pomerleano, and V. Sundararajan (eds.) The Future of Domestic Capital Markets in Developing Countries. Baltimore, MD: Brookings Institution Press, 2003.
Handle: RePEc:nbr:nberwo:10064
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