Macroeconomic determinants of capital markets development in Uganda

Abstract

This study analyses the macroeconomic determinants of capital markets development in Uganda. The Ugandan economy has had an operating capital market for a period close to 15 years. The main objective of this study was to find the macro economic factors which have impacted on capital markets development in Uganda. The Study employed the macroeconomic approach of determining the key factors which influence a capital market. The macroeconomic factors which were included in the study are: the saving rate, banking sector development, Foreign Direct Investment, Exchange rate, Income and macroeconomic stability. The study used secondary data to determine how each variable influences the development of the capital market in Uganda. The data scope was between 2001 and 2012 arranged in four quarters per annum so as to obtain 48 observations. Data analysis was done using regression analysis through the Eviews 7 econometrics software. The findings of the study revealed that Inflation (macroeconomic stability),exchange rate, domestic savings have a positive significant relationship with the capital markets development while Banking sector development and income have a positive insignificant relationship with capital markets development in Uganda. However foreign direct investment has a negative impact on capital markets development in Uganda. The researcher recommends various macroeconomic policies which can develop capital markets in Uganda such as increasing the level of employment so as to raise the percapita Gross Domestic product and putting in place sound macroeconomic policies such as exchange rate stabilization.