An Investigation of a Partial Dutch Disease in Botswana

Abstract

Diversification of resource-driven economies has proven to be a very stubborn problem. Even relatively successful countries struggle to achieve a structural change towards manufacturing and high-tech industries. Botswana has been often cited as one of the few countries that escaped the resource curse and performed well in terms of economic growth. However, a significant share of the domestic output and most of the exports are still coming from the mining sector. In this paper we present the spending effect as a possible explanation for the lack of economic diversity. Using a nonlinear autoregressive distributed lag model, we investigate the cointegration of the diamond price index and the pula exchange rate against the currencies of Botswana's main trading partners on monthly time-series data. Our analysis is based on a recent dataset that covers the period from the introduction of the crawling band exchange regime until 2018. The results highlight a partial Dutch disease phenomenon related to Botswana's trade union partners: Namibia and South Africa.