The Impact of Macroeconomic Variables on Capital Market Development in Botswana’s Economy

Abstract

This study examines the impact of macroeconomic variables on stock and bond markets development in Botswana using Autoregressive Distributed Lag (ARDL)-Bounds Test.  The results indicate that macroeconomic variables have an impact on capital market development in Botswana. In the short run, real output, money supply and inflation have a positive influence on the development of the stock market, while real exchange rate retards its development. Real output further supports the development of the stock market in the long run. For the bond market, inflation rate and lending rate have positive and negative impact on the bond market in the long run respectively, while the remaining variables do not influence the bond market in the short run. Policy implications include increased efforts by policy makers to increase gross domestic product for the development of stock market, while the bond market development requires a decrease in lending rates.