Firms in low- and middle-income economies have enjoyed a surge in capital market financing over the past three decades.

This growth is broad-based and includes a diverse spectrum of firms from a growing number of economies.

Firms are deploying this capital to invest in factories and hire workers, which contributes to economic development.

The growth has been impressive. Firms from low- and middle-income countries raised a cumulative 4ドル trillion from bond and equity markets between 1990 and 2022. From 2000 to 2022, capital market financing grew by 400% in middle-income countries and 800% in low-income countries.

As a share of GDP, the amount in low- and middle-income countries doubled. Furthermore, capital market financing grew faster than bank financing, which has traditionally been the main source of financing for firms in those countries.

Domestic bond and equity markets denominated in local currencies drove the growth. Between 1990 and 2022, domestic markets accounted for 53% of total bond issuance and 79% of total equity issuance.

Significantly, the average size of individual domestic bond issuances for first time issuers fell by 30%. The decline suggests that accessing domestic capital markets has become easier for small firms since they tend to issue smaller amounts.

As capital markets expanded, a broader range of firms gained access to financing, with a greater share of funds allocated to smaller, younger, more productive, and financially more constrained firms than those already participating in capital markets.
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The impact of capital market financing on firm growth depends on the issuer and the financial instrument. The impact on growth is more pronounced for new participants despite their smaller issuances since issuance eases their financial constraints.

The positive effects on firm growth are twice as strong for equity issuances as for all bond issuances.

The rapid expansion of capital markets in low- and middle-income economies had a positive impact on the productivity of firms and the entire economy.

In particular, in the first year after issuing bonds and equity, firms’ investment in physical capital—factories, machines, and other productive capacity—grew 16% in low-income countries and 8% in middle-income countries.

Increased physical capital investment was accompanied by an increase in both employment and sales.

The positive economy-wide impact suggests that capital markets promote a more efficient allocation of resources. Participation of firms in capital markets is linked to expansion of a country’s physical capital stock and employment.

In middle-income countries, equity and bond issuance by firms accounted for 22% of the growth in physical capital stock and 20% of the growth in the employment of firms between 2000 and 2022. In low-income countries, the figures were 21% and 12%.

To sum up, the capital market boom of low- and middle-income countries is contributing significantly to their economic growth by easing the financial constraints of small, dynamic companies and thus unleashing their productive potential.

Overall, this study underscores the crucial role of effective economic policies and financial reforms in expanding domestic capital markets. By issuing their own bonds, governments establish benchmarks that contribute to deeper and more liquid markets. Additionally, regulatory improvements, enhanced corporate governance, and stronger investor protections have attracted both local and international investors.

Pension reforms, which provide a stable investor base, have led to a nearly fivefold increase in domestic issuance activity in the years following these reforms. These insights provide a valuable roadmap for policymakers and investors looking to leverage the potential of capital markets to drive sustainable development.

Matias Soria contributed research to this blog post, which is based on Financing Firm Growth: The Role of Capital Markets in Low- and Middle-Income Countries. Edited by Cesaire A. Meh and Sergio L. Schmukler. 2025. Washington D.C.: World Bank Group.