Abstract:
This paper estimates the impact of exchange rate volatility on non-diamond exports
in Botswana using an Autoregressive Distributed Lag (ARDL) model. The model
used quarterly data for the period 1995-2018, to estimate both the long and short run
dynamics. The estimated results show that real GDP in the non-diamond sector, GDP
growth of OECD countries, transport investment and water & electricity investment
have a positive impact on non-diamond exports. While the lending interest rate, inflation
differentials, exchange rate volatility and misalignment impact non-diamond exports
negatively. The findings indicate that the coefficients with respect to the exchange rate
volatility in both models are relatively low, suggesting that it has not had harmful impacts
on non-diamond exports. This reflects the emphasis given to a stable and competitive
exchange rate that will attract increased foreign demand which, as a result, could lead to
export diversification. However, Botswana’s export structure is still undiversified, despite
efforts made to diversify the sector. To achieve the national objectives of sustainable
export and economic diversification, the policy should continue encouraging a stable
and competitive exchange rate. Other policies intended to boost export growth should
focus on: expanding the production base of the non-diamond sector, committing more
investment in the transport sector, and improving water & electricity infrastructure.
Description:
The series comprises of papers which reflect work in progress, which may be of interest
to researchers and policy makers, or of a public education character. Working papers
may already have been published elsewhere or may appear in other publications.
