Capital Market Development and Internal Borrowing in Latin America Countries

Authors

  • Martina Olivia University of Argentina
  • Catalina Alma University of Argentina

DOI:

https://doi.org/10.53819/81018102t2019

Abstract

In many developing countries, governments have given much attention to domestic debt compared to external indebtedness. Despite the fact that domestic borrowing has many advantages; it also has negative impacts especially when it goes beyond a sustainable amount. Domestic debt affects a country’s inflation rates, interest rates among many other factors. Through this study of how various concepts are affected by domestic borrowing, various governments will clearly understand the effects of domestic borrowing on their capital market development and align their domestic debts from the capital market institutions that will finally promote the development of the capital markets. The study used a descriptive research, which involved the measurement, classification, analysis, This study adopted the descriptive study design. The study concluded that there is a positive relationship between high domestic public debt and capital market development, an increase in domestic debt causes the capital market development to decrease. When a country borrows more domestic, debt and less external debt it promotes capital markets development in the long run. The regression model used in the study was statistically significant in explaining the effect of domestic public debt on capital markets development in South America Countries. The study further concluded that inflation rate has a negative impact on financial market development this implies that inflation had a negative impact on capital markets development. It also conclude that an increase in interest rate impact positively the capital markets development. The study recommends on continued deepening of the capital markets to lengthen further the maturity profile of domestic debt and diversification of the investor base. The study further recommends on continued implementation of policies to support macroeconomic stability and faster economic growth. This includes restructuring public debt towards external borrowing which is comparably cheaper than domestic debt, and rationalization of recurrent expenditures to contain the widening deficit in the primary balance would be necessary in the medium-term to ensure that public debt remains on a sustainable path to allow for capital markets development.

Keywords: Capital Market Development, Domestic Borrowing, & Latin America Countries.

Author Biographies

Martina Olivia, University of Argentina

University of Argentina

Catalina Alma, University of Argentina

University of Argentina

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Published

2021-10-30

How to Cite

Olivia, M., & Alma, C. (2021). Capital Market Development and Internal Borrowing in Latin America Countries. Journal of Finance and Accounting, 5(4), 12–22. https://doi.org/10.53819/81018102t2019

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Articles