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This World Bank note consolidates and summarizes the theoretical and empirical research produced in the past 20 years on the causes, effects, and sequencing of capital markets development. Overall, the empirical studies reviewed confirm the potential benefits of capital markets to economic growth and, under certain conditions, to financial stability. At the same time, the empirical research confirms the existence of a series of preconditions for capital markets to develop. The empirical research on sequencing is more limited.