Developments in Capital Markets
THE WORLD'S FINANCIAL LANDSCAPE UNDERWENT significant changes during the past few decades. The global financial system grew substantially after the early 1970s and boomed during the 1990s. Financial intermediation through both financial institutions and securities markets expanded at a remarkable pace, and the spectrum of financial services and instruments reached new dimensions.
Developing countries were not immune to these global developments, and what happened in domestic capital markets across regions was to a large extent a reaction to global forces linked to financial globalization and innovation. Latin America is a clear example of this. Nevertheless, capital markets in the region today are not simply a smaller-scale replica of markets in developed countries. In fact, domestic capital market developments in Latin America have differed in some major aspects from developments not only in industrialized countries, but also in other emerging markets, most notably East Asia.
To provide a better understanding of the current state of domestic capital markets, this chapter first documents the developments in international financial markets and the increasing globalization process. The chapter then describes how developing countries, and in particular Latin American economies, responded to these worldwide changes. We describe the extensive reform agenda that policy makers pursued in an effort to match developments in international markets and to turn their domestic capital markets into an attractive destination for international capital flows.
To assess the development of domestic capital markets, this chapter documents the evolution of Latin American markets over time and compares them with other regions, especially East Asia and developed countries. Because capital markets across the region show a high degree of heterogeneity, we also highlight country differences and provide a closer look at Chile and Mexico, which are often perceived as regional success stories in terms of domestic securities market development.
This chapter does not attempt to quantify the impact of specific policy choices or market trends on capital market development, nor does it