Abstract:
The 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, only two variables, inflation rate and
lending rate have positive and negative impact on the bond market in the long run
respectively, while none of the variables influence the bond market in the short run.
Policy implications include increased efforts by policy makers to increase money supply,
gross domestic product for the development of stock market, while the bond market
development requires a decrease in lending rates.
