The Real Exchange Rate as a Measure of Competitiveness in Botswana: 1976-1999

Abstract

The purpose of this paper is to compute and to compare real exchange rate (RER) indexes for Botswana based on different measures in order to assess Botswana's competitiveness relative to its major trading partners. This is the second research to calculate and analyse various measures of competitiveness for Botswana through the RER, and it is more comprehensive than the first. Two measures of competitiveness, being the bilateral RERs and multilateral RERs based on the Consumer Price Indexes (CPI) and the Gross Domestic Product (GDP) deflator show that Botswana has been gaining competitiveness relative to its major trading partners over the study period, while the one based on EXPVs indicated a loss of competitiveness. These findings coincides with the argument of Fleissing and Grennes (1994) that for a given base year, some contradictions concerning the direction of currency misalignment can be due to the behaviour of alternative price indexes used in the construction of the RER indexes.


EASSRR Vol.XX No.2 2004: 99-120