Rise in Capital-Market Financing Powers Investment and Employment in Developing Countries

WASHINGTON, Mar. 13, 2025—Businesses in developing countries have rapidly expanded their use of capital markets since the turn of the century, a trend that is fueling new investments, increasing sales, and creating more jobs, new research from the World Bank Group shows.

The study, Financing Firm Growth: The Role of Capital Markets in Low- and Middle-Income Countries, analyzes data from nearly 80,000 firms worldwide. It finds that stock and bond issuances by companies in low- and middle-income countries doubled as a share of GDP between 2000 and 2022. In middle-income countries, cumulative net capital issuance—the sum of stock and bond issuances minus bonds that have matured—increased fourfold during that period. The increase in low-income countries was eightfold. In all, net capital issuance totaled $4 trillion between 1990 and 2022.

“Access to capital is vital for business growth,” said IFC Managing Director Makhtar Diop. “This report underscores just how crucial capital market financing is in lower-income countries, where it drives investment, creates jobs, and boosts sales with real development impact.”

Across all developing economies, capital-market financing grew at a faster clip than bank financing, the study finds. The surge was larger in lower-income countries than higher income ones, with the number of issuing firms in developing countries increasing 300 percent since 2000, compared with 40 percent in high-income countries. Much of this expansion is attributable to businesses accessing capital markets for the first time, of which more than 60 percent are smaller and younger enterprises that had never accessed these sources of financing before.

In low-income economies, raising capital via bond or equity issuance can lead to as much as a 16 percent increase in the value of firm’s property, plant, equipment, and other physical capital within the first year. Beyond these gains in tangible assets, the same firms see a 10 percent jump in sales and a 5 percent boost in employment within the first year—an especially crucial outcome given the formidable job-creation challenge in developing countries.

The report underscores the importance of sound economic policies and financial reforms in deepening domestic capital markets, such as the transition to prefunded pension systems that have been associated with a near fivefold increase in domestic issuance activity in the years following reform. These insights provide a roadmap for policymakers and investors looking to harness the potential of capital markets to drive growth and job creation.

Part of the IFC Research Series, the publication was made possible through financial support from the Government of Luxemburg through the World Bank Group’s Joint Capital Markets Program (J-CAP). For further details and to access the full publication, please visit: https://www.ifc.org/en/insights-reports/2025/financing-firm-growth