Trade openness and economic growth in Botswana: Evidence from cointegration and error-correction modelling

The purpose of this paper is to estimate the dynamic impact of trade openness on economic growth in Botswana using the ARDL bounds testing approach. The study employs four different proxies for trade openness, which include trade-based measures and a composite index. The trade-based measures capture the effects of total trade, exports, and imports while the composite index takes country size and geography into account. The use of four different indicators in this study enables a broader analysis of how different forms of trade openness affect economic growth. Evidence from the results points to the significance of total trade and exports in promoting economic growth in Botswana, but also the lack of growth impetus from imports. Specifically, the results reveal that when the ratio of total trade to GDP, the ratio of exports to GDP, and the trade openness index are used as proxies of trade openness, then trade openness has a significant, positive impact on economic growth in both the short run and the long run. However, when the ratio of imports to GDP is used as a proxy for openness, the study fails to find any significant impact of trade openness on economic growth in both the short run and the long run. Based on these findings, this study recommends that Botswana should pursue policies that boost the exports and total trade. However, there is a need for the country to revisit its combination of imports to enable significant growth-enhancing effects from the imports sector.