ISSN (Online) - 2349-8846
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A Historical Perspective on the Role of Stock Markets in Economic Development

Providing a critical appraisal of the new mainstream literature, which argues that successful late developers like Germany and Japan had strong stock markets in their early phase of development, this paper tries to track the size of stock markets over the 20th century using data provided by Raymond Goldsmith. It also presents historical case studies of Germany and Japan, which show that government intervention in the financial sector was rife in the early years and proved critical in shaping the size and role of stock markets in their economies. Besides, these case studies do not show that equity funding flourishes when governments adopt a hands-off approach towards the financial system.


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A longer version of this paper was presented at a conference organised by the Centre for Economic Studies and Planning, Jawaharlal Nehru University, on 7 March 2011. I am grateful to C P handrasekhar, J Mohan Rao and R Ramakumar for comments and discussions on an earlier draft of this paper. Needless to say, all errors and omissions are


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