Capital market development in an emerging economy and the challenge of fostering foreign participation

This paper investigates the contribution of foreign investors to capital market development in an emerging economy. The findings reveal that Foreign Portfolio Investment (FPI) as well as foreign issue of securities (FS) made insignificant contribution to development of the market compared to other contending factors such as domestic securities investment (DSI) and domestic issue of securities (DS). This appears to constitute a policy challenge, considering the enormous gain that would accrue to the economy from increasing foreign participation in the market. The challenge could be surmounted by liberalising investment laws, offering fiscal incentives, and strengthening surveillance of the market to enhance efficiency.