Capital market development in emerging African countries: the pandemic problem and role of macroeconomic policies

Purpose The study investigates the role of macroeconomic policies in driving capital market development in emerging African countries where the markets are relatively active. It aims to determine the effects of these policies in pre-pandemic period vis-a-vis the post-pandemic period. Design/methodology/approach The generalized method of moments (GMM) and auto-regressive distributed lag (ARDL) are employed in estimating the role within the period 2012Q1-2023Q3. The panel unit root test is used to ascertain the stationary status of variables, while maximum likelihood estimator is employed to determine structural stability of the model. Findings The empirical results reveal that fiscal and monetary policies played significant positive role in capital market development in both pre- and post-pandemic periods. On the other hand, trade policy and investment return had significant impact in pre-pandemic period which could not be sustained in post-pandemic period. It is only exchange rate policy that remained insignificant in both periods. The findings therefore suggest that capital market development slowed in the post-pandemic period due to reduced performance of macroeconomic policies. Furthermore, the unit root test reveals that all the variables satisfy empirical properties that ensure estimation results are consistent and non-spurious. The maximum likelihood estimator showed there was long-term structural break, hence short-term impacts were used in comparative analysis. Originality/value Macroeconomic policies are fundamental to financial market development in developing countries. The role in resuscitating capital market in the post-pandemic period has yet to be adequately investigated in African countries. This study is carried out to fill this void.