The causal dynamics between the domestic bond market and economic growth in Botswana

Purpose This study aims to scrutinise the causal relationship between the domestic bond market and the growth of the economy in Botswana from 2006 to 2020. Design/methodology/approach The Trivariate Granger causality model within an autoregressive distributed lag (ARDL)-bounds testing approach was employed on gross savings (SAV), economic growth, corporate bond market (CBM) and government bond market (GBM). Findings The empirical results revealed the neutrality hypothesis in the GBM. This implies that the GBM does not affect economic growth in Botswana, nor does economic growth impact the GBM. In the short run, a unidirectional causal link existed between the CBM and economic growth, running from economic growth to the CBM, which evidenced the demand hypothesis. Research limitations/implications The study used the bond market data from 2006 to 2020, despite the Botswana domestic bond market being established in 1997. It would be necessary to conduct another study that includes data from 1997 to 2005 once it’s availed to the public to ascertain whether the results would diverge from those of this study. Also, it would provide a full overview and trends about the Botswana domestic bond. Even though the years 1997–2005 were excluded, still the period under consideration provided sufficient data required by various regression models used in this study, resulting in robust results. Practical implications The Botswana Government and regulators of the financial markets should concentrate on fostering the growth of the corporate bond market by implementing favourable bond market listing requirements. Policymakers should decrease the market capitalisation of government bonds to encourage the growth of the corporate bond market. Originality/value This study provides new empirical evidence on the relationship between bond market development and economic growth in Botswana, a context that remains underexplored in the literature. By employing a trivariate Granger causality within an ARDL framework, the study addresses methodological limitations found in previous research. It provides a comprehensive insight into how domestic bond market Granger causes economic growth in a developing country context. It recommends valuable policy implications to policymakers in developing countries seeking to leverage domestic bond markets as a catalyst for sustainable economic growth.