The Jamaican economy has been growing at an annual average rate of 0.7 per cent over the last four decades. The local stock market has been improving consistently, but has not fully translated into improved economic growth. Capital markets support economic growth by providing new sources of funding for long-term investment and facilitating improvements in corporate governance.
According to the European Central Bank; 'A well-developed financial system should improve the efficiency of financing decisions, favouring a better allocation of resources and thereby increasing economic growth'. Additionally, increasing the size of the domestic capital market could compensate for the post-financial crisis decline in banking sector lending.
Globalisation has resulted in the need for less restriction on the flow of international capital but has increased the need for more regulation.The Financial Services Commission was established in 2001 to regulate the capital market in Jamaica. The regulatory framework and how capital is channelled will determine the success of capital market expansions to increasing GDP growth.
Kaserer and Steffen Rapp (2014) found evidence to suggest that there is positive relationship between capital market growth and GDP growth. Further evidence has shown that countries with more developed financial systems allocate a greater share of investment to relatively faster-growing sectors. To create a synergy between capital market and economic output, Jamaica should try to allocate a greater share of its investments to relatively faster-growing sectors as well. This will facilitate a more efficient restructuring of the economy, which is important to achieve increased economic growth.
The Ministry of Industry Commerce, Agriculture and Fisheries outlined that medium, small and micro enterprises (MSMEs) account for 90 per cent of jobs in the Jamaican economy. The world in general is looking to these MSMEs to increase global economic growth. However, the existing structure of the capital market in Jamaica doesn't facilitate investment in MSMEs, which might be a contributing factor as to why the Jamaican economy is not growing as how it ought to.
The room for growth for established companies isn't as great as the room for growth for MSMEs. As a result, the Government should think critically about how to improve capitalising for MSMEs. In line with global trends and domestic requirements, investment for these MSMEs should be more in the form of equity. Provision under the Security Interest in Personal Property Act, which allows entrepreneur to use movable asset such as livestock and motor vehicle, etc as collateral for loans, is necessary but not sufficient.