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

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  • Gosego Mothuti

    (Department of Economics, Nelson Mandela University)

  • Andrew Phiri

    (Department of Economics, Nelson Mandela University)

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 increased exports and an appreciated Pula currency as having a significant positive effect on steady-state GDP growth. Further empirical exercises show that an appreciated Pula increases inflation whilst a depreciated Pula decreases inflation 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.

Suggested Citation

  • Gosego Mothuti & Andrew Phiri, 2018. "Inflation-growth nexus in Botswana: Can lower inflation really spur growth in the country?," Working Papers 1824, Department of Economics, Nelson Mandela University.
    • Handle: RePEc:mnd:wpaper:1824
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    References listed on IDEAS

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    2. Roseline Tapuwa Karambakuwa & Ronney Ncwadi & Andrew Phiri, 2020. "The human capital–economic growth nexus in SSA countries: what can strengthen the relationship?," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 47(9), pages 1143-1159, July.

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    More about this item

    Keywords

    Inflation; Economic growth; Exchange rates; Bank of Botswana; Nonlinear autoregressive distributive lag (N-ARDL) model.;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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