Capital market liberalization or liberalization of the capital market refers to government restrictions relaxation in the capital market. Not only the government entities, but private entities can participate in the functioning of the capital market. Capital market liberalization is also a result of trade liberalization and globalization. Investors around the world can invest in shares and bonds of other countries because of liberalization in the capital market. The economies worldwide, especially in the developing countries are opening their doors to foreign investments and capital. This enhances global competitiveness.
Unbound circulation of goods and services within and between countries results in increased circulation of money and this has a positive effect on the capital market. The non tariff and tariff trade barriers are eliminated and unnecessary legislations and taxes are not imposed as a result of capital market liberalization. Both parties involved in a trade stand to benefit from the effects of liberalization. The productivity gains and the maximization of general efficiency of the economy are also a result of capital market liberalizing. Free access can be had to the capital markets and capital market informations. There is complete absence of policies that hamper trade badly and labor and capital are allowed a free flow under a liberalized capital market.
Development of open capital markets have been the prerogative worldwide for a long time. Several economies have made huge developments by opening up their markets. Free trade makes clear demarcations between losers and winners, but, at the end of the day, the society gains from it. Globalization ensures hassle free import and export of goods and services. The whole capital market has now become a global common market. The corporations and companies can receive external investments. Both companies and individuals can gain access to foreign goods and services. Capital market liberalization has led to a general opening up of the world economy and all and sundry stand to reap benefits of this.