2"STOCKM ARKETD EVELOPMENAT NDL ONG-RUNG ROWTH"BYROSS LEVINE AND SARA ZERVOSWorld stock markets are booming. Developing country stock markets compose adisproportionately large amount of this growth. Over the past 10 years, world stock marketcapitalization rose from $ trillion to $ trillion, and emerging market capitalization jumpedfrom less than 4 percent to almost 13 percent of total world capitalization. Similarly, over thisdecade, the trading of shares on emerging stock exchanges rose from less than 3 percent to 17percent of the total value of transactions on the world's stock exchanges. Further, Korajczyk(1996) shows that emerging markets have become more integrated with world capital marketsduring the past seven years. The blossoming of emerging stock markets has attracted theattention of international investors. Portfolio equity flows to emerging markets jumped from$150 million in 1984 to over $39 billion in 1995. Yet, there exists very little empirical evidenceon the relationship between stock market development and long-run economic growth.