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The Emergence of Equity Investment in Developing Countries: Overview

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  • Claessens, Stijn

Abstract

Equity flows to developing countries have increased sharply in recent years. Foreign equity investment can be beneficial to developing countries because of its risk-sharing characteristics and effects on resource mobilization and allocation. Empirical evidence shows that the stock markets of developing countries have become more, although not fully, integrated with world financial markets, and this increased integration implies a lower risk-adjusted cost of capital. Constraints to further increasing the flows and expanding the benefits are macroinstability, poorly functioning stock markets, and insufficiently open financial markets. Empirical evidence does not support the view that equity flows are more volatile than other types of capital flows or that equity flows have a negative impact on the volatility of stock prices. Copyright 1995 by Oxford University Press.

Suggested Citation

  • Claessens, Stijn, 1995. "The Emergence of Equity Investment in Developing Countries: Overview," The World Bank Economic Review, World Bank, vol. 9(1), pages 1-17, January.
    • Handle: RePEc:oup:wbecrv:v:9:y:1995:i:1:p:1-17
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    Cited by:

    1. Scott J. Niblock & Panha Heng & Keith Sloan, 2014. "Regional stock markets and the economic development of Southeast Asia," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 28(1), pages 47-59, May.
    2. Baek, In-Mee, 2006. "Portfolio investment flows to Asia and Latin America: Pull, push or market sentiment?," Journal of Asian Economics, Elsevier, vol. 17(2), pages 363-373, April.
    3. Jan, Yin-Ching & Chou, Peter Shyan-Rong & Hung, Mao-Wei, 2000. "Pacific Basin stock markets and international capital asset pricing," Global Finance Journal, Elsevier, vol. 11(1-2), pages 1-16.
    4. Perotti, Enrico C. & van Oijen, Pieter, 2001. "Privatization, political risk and stock market development in emerging economies," Journal of International Money and Finance, Elsevier, vol. 20(1), pages 43-69, February.
    5. Assaf Razin & Efraim Sadka & Chi-Wa Yuen, 1996. "Tax Principles and Capital Inflows: Is It Efficient to Tax Nonresident Income?," NBER Working Papers 5513, National Bureau of Economic Research, Inc.
    6. Hargis, Kent & Ramanlal, Pradipkumar, 1998. "When Does Internationalization Enhance the Development of Domestic Stock Markets?," Journal of Financial Intermediation, Elsevier, vol. 7(3), pages 263-292, July.
    7. Razin, Assaf & Sadka, Efraim & Yuen, Chi-Wa, 1998. "A pecking order of capital inflows and international tax principles," Journal of International Economics, Elsevier, vol. 44(1), pages 45-68, February.
    8. Molefhi, Koketso, 2021. "The Impact of Macroeconomic Variables on Capital Market Development in Botswana’s Economy," African Journal of Economic Review, African Journal of Economic Review, vol. 9(2), April.
    9. Ajit Singh, 1998. "Financial liberalisation, stockmarkets and economic development," Nova Economia, Economics Department, Universidade Federal de Minas Gerais (Brazil), vol. 8(1), pages 165-182.
    10. Catherine Bonser‐Neal & Kathryn L Dewenter, 1999. "Does Financial Market Development Stimulate Savings? Evidence From Emerging Stock Markets," Contemporary Economic Policy, Western Economic Association International, vol. 17(3), pages 370-380, July.
    11. Chi-Wa Yuen & Assaf Razin & Efraim Sadka, 1996. "A Pecking Order Theory of Capital Inflows and International Tax Principles," IMF Working Papers 1996/026, International Monetary Fund.
    12. Castaneda, Gonzalo, 2006. "Economic growth and concentrated ownership in stock markets," Journal of Economic Behavior & Organization, Elsevier, vol. 59(2), pages 249-286, February.
    13. April Knill & Bong Soo Lee, 2014. "The Volatility of Foreign Portfolio Investment and the Access to Finance of Small Listed Firms," Review of Development Economics, Wiley Blackwell, vol. 18(3), pages 524-542, August.
    14. Mirakhor, Abbas, 2010. "Whither Islamic Finance? Risk Sharing in An Age of Crises," MPRA Paper 56341, University Library of Munich, Germany.
    15. Goopu, Sudarshan, 1996. "The analysis of emerging policy issues in development finance," Policy Research Working Paper Series 1589, The World Bank.
    16. Gooptu, Sudarshan, 1996. "Emerging policy issues in development finance," The Quarterly Review of Economics and Finance, Elsevier, vol. 36(Supplemen), pages 85-100.
    17. Middleton, C.A.J. & Fifield, S.G.M. & Power, D.M., 2008. "An investigation of the benefits of portfolio investment in Central and Eastern European stock markets," Research in International Business and Finance, Elsevier, vol. 22(2), pages 162-174, June.
    18. Jan Stankovsky & Yvonne Wolfmayr-Schnitzer, 1996. "Österreich als Standort für Ostzentralen," WIFO Studies, WIFO, number 2807.
    19. Rashid Al-Qenae & Carmen Li & Bob Wearing, 2002. "The Information Content of Earnings on Stock Prices: The Kuwait Stock Exchange," Multinational Finance Journal, Multinational Finance Journal, vol. 6(3-4), pages 197-221, September.
    20. Mirakhor, Abbas, 2012. "Islamic Finance, Risk Sharing and Macroeconomic Policies," MPRA Paper 56338, University Library of Munich, Germany.
    21. Miriam Ratkovicova, "undated". "Driving Factors of Efficiency of CEE Capital Markets," CASE-CEU Working Papers 0035, CASE-Center for Social and Economic Research.
    22. Akira Kohsaka, 1996. "Interdependence through Capital Flows in Pacific Asia and the Role of Japan," NBER Chapters, in: Financial Deregulation and Integration in East Asia, pages 107-146, National Bureau of Economic Research, Inc.
    23. Knill, April M., 2005. "Taking the bad with the good : volatility of foreign portfolio investment and financial constraints of small firms," Policy Research Working Paper Series 3797, The World Bank.
    24. Perotti, Enrico C & van Oijen, Pieter, 1999. "Privatization, Political Risk and Stock Market Development," CEPR Discussion Papers 2243, C.E.P.R. Discussion Papers.

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