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Impact of exchange rate volatility on Botswana`s imports

Naledi C Modisaatsone and G.R. Motlaleng
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Naledi C Modisaatsone: Botswana Institute of Development Policy Analysis
G.R. Motlaleng: Department of Economics, University of Botswana, P/Bag 0022, Gaborone, Botswana

E3 Journal of Business Management and Economics., 2013, vol. 4, issue 5, 125-138

Abstract: This paper investigates the effects of the Rand/Pula exchange rate volatility on Botswana*s disaggregated imports. The VECM framework is selected in order to take into account the possibility of simultaneity between endogenous and exogenous variables. The VECM also allows the use of impulse response functions. The results suggest that exchange rate volatility does have an impact on imports. However, its magnitude, significance and the direction vary substantially across the four groups of imports studied being, Fuel, Textiles, Food and Metals. From the results it is clear that the exchange rate volatility impact has been firmer in the long run than short run. The findings of the study imply that although the Rand/Pula exchange rate volatility affects imports, the effect is not robust. Imports are found to be more responsive to changes in GDP. An almost negligible response of imports to real exchange rate in the overall picture of the results enforces the idea of an inelastic import demand.

Keywords: Exchange rate volatility; Botswana*s imports; Vector Error correction model. (search for similar items in EconPapers)
Date: 2013-05
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