Are capital markets evil?

Capital markets often get a bad rap.

But an Alternative Investment Management Association (AIMA) research paper, Capital Markets and Economic Growth: Long-term Trends and Policy Challenge, argues that bond and stock markets could help revive the European Union’s battered economy.

Growing the region’s capital markets by one-third could produce a long-term real growth rate in per-capita GDP of around 20%, making up for the current decline in bank lending, according to the paper.

It says one way that capital markets stimulate the economy is through providing new funding sources for long-term investment.

The document also points out that the distinctions are disappearing between the bank-based economic structures of certain European countries and the more market-based structures of the United Kingdom and the United States.

Although the paper focuses on Europe, its conclusions are relevant to the rest of the world, too, says Jack Inglis, AIMA’s CEO. “Bank lending clearly is not keeping pace with demand and the global economic recovery could be jeopardized unless new sources of financing can be found, particularly from the investment management community.”

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