Latin American Capital Markets

PROMOTING REGIONAL CAPITAL MARKET INTEGRATION 161however; many of the issues relevant for regional integration of the equity markets arealso relevant for regional integration of the debt markets. Finally, many attempts atachieving regional capital market integration have not been well documented, so muchof the information that is available comes from secondary sources.Benefits, Costs, and BarriersThe European Union has made the most extended and extensive examination of thecosts and benefits of and barriers to regional capital market integration. Following itsinitial report in 1966, the European Commission has issued a report every 10 yearsor so, focusing on the merits of regional capital market integration and on how it canbe achieved. 1On July 17,2000, for the first time, the issue changed from one that was primarilyof concern to European bureaucrats to one that was seen as critically importantat the highest political level, namely by the economic and finance ministers of theEuropean Union. On that date, they established a "Committee of Wise Men" to determinewhy the capital markets in Europe were not yet integrated and what to doin order to achieve this (Committee of Wise Men 2000).The committee was establishedbecause it was recognized both that there were significant impediments limitingthe integration of the European capital markets and that great gains could beachieved by such integration.Benefits and CostsThe integration of a region's capital markets should lead to several benefits. Integrationshould lower prices for all financial services because competition lowers transactioncosts and allows larger regional firms to exploit economies of scale and scope.These effects will be evident in all forms of intermediation, investment, and other capitalmarket activities. More efficient, more liquid, and broader securities markets willlikely have increased turnover. Integration will generate innovative financial productsand services. All sectors of the capital markets industry will undergo an industrialtransformation. Integration will provide cheaper financing for companies, given lowertransaction costs. Capital will be allocated more efficiently because savings will flow1See European Economic Community Commission (1966); Commission of the European Communities (1977, 1978,1980, 1988); Commission of the European Union (1999).Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub