The article focuses on the role of capital market in shaping a country's economic development with special reference to developing economies.

Capital Markets in any country play an important role in supporting technological progress and in the economic development by channeling funds for investment in productive assets, contributing to long-term growth prospects of the economy. The International Finance Corporation (IFC) uses the parameters of income per capita and market capitalization relative to GNP for classifying equity markets. If a market resides in a low- or middle-income economy, or the ratio of investable market capitalization to GNP is low, then it classifies the market as `Emerging'. Capital Markets in developing countries have displayed considerable growth during the 1980s and the early 1990s, this can be attributed to the liberalizing policies adopted by the governments of these developing countries along with International Financial Institutions.

The direct influence of Capital Market is seen in the growth of corporate sector, that have reduced their dependence on banks as a source of finance to raise equity in the Capital Market. Empirical studies by Jack Glen and Brian Pinto (1994) on the capital structure of 100 publicly traded companies in seven developing countries for the period 1980-1992 show that, the companies prefer to utilize capital markets as a source of external finance when compared to other sources of raising capital.

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