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Abstract

Development finance institutions which provide equity capital have been used to stimulate economic growth worldwide. The potential uses for equity development finance organizations in the United States have been recognized. Probably the most dramatic use, and one with broad economic ramifications is the establishment of an equity development finance institution to correct imperfections in the private capital market system of this country. One of the major flaws of the American capital market has been that the supply of capital for new small sized businesses has been artificially scarce. The focus of this Note will be , first to examine the reasons that the private capital market has failed to be an adequate source of equity capital for new small businesses. Second, this Note will review the structure and operations of the Canada Development Corporation, a development finance institution which makes equity investments in the Canadian economy. Finally, this Note will make recommendations as to how an equity development finance corporation modeled after the Canada Development Corporation, could be established in the United States to increase the availability of equity capital for small businesses.

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