EFFECTS OF TRADE LIBERALISATION ON ECONOMIC GROWTH – THE CASE OF BOTSWANA

Abstract

Trade liberalisation is often viewed as a catalyst for economic growth in developing and transition economies. In order to verify this hypothesis, this study empirically investigated the effect of trade liberalisation on economic growth in Botswana using annual time- series data from 1982 – 2018. The study incorporated real exports growth, real Imports growth, trade openness and foreign direct investment(FDI) in the formulated multivariate regression model. The exact method of analysis used is the Auto-Regressive Distributed lag (ARDL) bounds testing approach. The ARDL approach complemented by the Ordinary Least Squares (OLS) Regression Analyses, Unit Root Stationarity Tests, Vector Auto regression (VAR) modelling, co-integration procedures, model stability tests, heteroscedasticity tests and autocorrelation tests. For data analysis STATA statistical application was used. The empirical findings indicated a positive long run relationship between real exports growth and real imports growth on real GDP growth, while trade openness, and foreign direct investment growth rate exhibit a negative relationship with real economic growth. Based on the study results, it is recommended that Botswana undertakes policy reforms related to beneficiation of its primary export products, diversification its economy away from the mining, review of tariff and non-tariffs barriers on trade, promotion of local produced goods and policy reforms related to attraction of foreign investment and promotion of its exports.