An Econometric Approach to Exchange Control Liberalization and Economic Growth: The Case of Botswana

Abstract

This study assesses the impact of exchange control liberalisation on economic growth in Botswana. In literature it has been very unclear of how the liberalisation of exchange controls impacts economic growth as there has been mixed results. Botswana liberalised its exchange controls in 1999 and to date there has been no empirical study that assesses how their liberalisation has impacted Botswana’s growth. This study attempts to fill in the gap. It uses quarterly data from 1981 until 2006. Cointegration and VECM methods are used for estimation. The results show that exchange control liberalisation had no impact on economic growth in Botswana for the period studied. Botswana’s government needs to try and develop policies that will promote sectors that spur economic growth. Policies imposed should be in the form which enhance growth such as increasing capital stock and human capital in order to spur economic growth.

Keywords: Exchange control, Liberalisation, economic growth, Botswana.