Stock exchanges in low and middle income countries

Purpose - The purpose of this paper is to describe and critique the swing in international policy from encouraging lower income countries to erect local stock exchanges in the 1990s to discouraging them on efficiency grounds after the US securities markets collapsed in 2001. Design/methodology/approach - Surveys existing literature and data about stock exchanges in emerging market countries for evidence justifying a supportive policy approach to local exchanges in lower income countries. Findings - Basic indicators of stock exchange performance in lower income countries from the World Development Indicators database reveal positive trends alongside the less auspicious indicators emphasized by international organizations opposed to stock exchange development in lower income countries. A survey of finance and development literature generally, and work on capital markets specifically, provides evidence of and rationale for the public benefits of stock exchange development, particularly in emerging market countries. Review of governance structures of stock exchanges in low and middle income countries finds the public interest reflected in government participation in stock exchange boards and in their predominantly non‐profit status. Existing research on stock exchange trading systems provides a rationale for specific policy choices to encourage stock market performance and also highlights areas for further policy‐relevant research. Originality/value - Provides evidence and rationale to bolster the case for public support of local stock exchange development in low and middle income countries in the face of opposition to such efforts from international development agencies like the World Bank.