The Impact of Rand/Pula Exchange Rate Volatility on Botswana’s Economic Growth

Abstract

This paper undertakes an investigation of the impact of the Rand/Pula exchange rate volatility on Botswana’s economic growth. The paper is using annual time series data, from 1977 to 2018. The Generalized Method of Moment (GMM) is employed to evaluate the impact of the real exchange rate volatility on Botswana’s economic growth. The GARCH model results found the Pula/Rand exchange rate to be volatile. The Rand/Pula exchange rate volatility does not have an impact on Botswana’s economic growth. This finding mirrors those of Kaur et al. (2019) and Musyoki et al. (2012). They found negative but insignificant impact of exchange rate volatility on economic growth in Malaysia and Kenya, respectively. Our empirical findings suggest that Botswana’s economic growth is largely explained by trade openness and growth of labour force and not influenced by the Rand/Pula exchange rate volatility.