Exports Multiplicity and The Dutch Disease

Abstract

Following macroeconomics, an increase in exports should raise the Gross Domestic Product (GDP). However, the extant literature regarding comovement and causality between exports and GDP has not been consistent. Previous studies mostly attempted to link exports with GDP without attempting to relate each individual export commodity with economic growth. This study attempts to fill this gap using statistics for the Botswana economy by examining the country’s major seven export commodities namely: diamonds, gold, beef, soda ash, vehicles, copper-nickel, and textiles for the period 2006Q1-2013:Q4. The evaluation uses the popular Granger causality test and the Johansen cointegration procedure to examine statistical drifts between each merchandise and GDP. While the expectation was that all export commodities would trend together with GDP for the period under examination, the cointegration tests only affirmed long run affiliations between GDP, copper- nickel and textiles. The Granger causality test results were also not consistent in terms of causal relations, revealing causality only between GDP, textiles and Gold. The study then goes ahead in providing several recommendations for the Botswana scenario particularly considering Dutch disease effect