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inflation-growth nexus in Botswana: Can lower inflation really spur growth in the country?

Gosego Mothuti and Andrew Phiri ()

MPRA Paper from University Library of Munich, Germany

Abstract: Does inflation affect economic growth in Botswana over the short-run and long-run? In applying bounds procedure for modelling ARDL cointegation effects applied to empirical data collected between 1975 and 2016 we find that this hypothesis does not hold true for Botswana as inflation is found to be insignificantly related with economic growth over both the short and long-run. Our growth equation estimates point to exports (positive), government size (negative) and an Pula/Dollar exchange rate (negative) as being significantly correlated with steady-state GDP growth. Further empirical exercises show that an appreciated Pula/dollar exchange rate increases inflation whilst bearing no effect on economic growth. Conversely, a depreciated Pula/Dollar exchange simultaneously decreases inflation and economic growth for the Botswana economy. Policymakers should be this aware that attainment of lower inflation rates which occurs through a depreciated Pula/Dollar currency will only retard economic growth.

Keywords: Inflation; Economic growth; Exchange rates; Bank of Botswana; Nonlinear autoregressive distributive lag (N-ARDL) model. (search for similar items in EconPapers)
JEL-codes: C13 C32 C52 E31 F43 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gro and nep-mac
Date: 2018-06-20
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Journal Article: Inflation-Growth Nexus in Botswana: Can Lower Inflation Really Spur Growth in the Country? (2018) Downloads
Working Paper: Inflation-growth nexus in Botswana: Can lower inflation really spur growth in the country? (2018) Downloads
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