This chapter describes a theory of securities market development to promote economic growth. Financial-structure development is seen to be a necessary condition for economic growth. Specifically, the development of securities markets is seem to be necessary for the economy to progress to its final growth stages. The reinforcing feedback effects between the securities markets and the real economy propel the latter to higher growth levels.
Undoubtedly there are costs of promoting securities markets, but the overall benefits are believed to outweigh the costs. While the theory in its entirety does not yield a testable hypothesis, the final two stages do permit empirical verification. At the very minimum, it is possible to test whether the characteristics of securities markets in developed and developing nations are sufficiently distinct to differentiate between them.
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