An Application of Thirlwall's Model to Botswana's Economic Growth

Abstract

This paper estimates economic growth of Botswana using Thirlwall's and the Extended Thirlwall's models for the period of 1980-2016. Parameters from the Thirlwall's model shows the calculated growth rate of 5.63 percent while the actual growth rate was 6.52%. These growth rates are very close to each other. This indicates that price and income elasticities of exports and imports influence Botswana's economic growth. Our empirical findings support those of Matsheka (1998). These empirical findings suggest that the Thirlwall's law holds in Botswana. i.e., Botswana's economic growth rate is balance of payments constrained. The Extended Thirlwall's model showed lower growth rate of 4.26% which is less than the actual growth rate. This suggested that the productivity factor has not played a significant role in the economic growth of Botswana. This might not be surprising. Botswana's economic growth is driven by the growth of diamonds exports where productivity might not be easily measured like in the manufacturing and services industries. These findings are in contrast to those of Romero and McCombie (2016) when investigating the impact of relative productivity growth on trade performance on developed countries. It is recommended that Botswana should improve her exports diversification strategies to increase economic growth without deteriorating her balance of payments