The financing of economic growth and development in Botswana : 1973-1994

This thesis studies the financing of economic growth and development in Botswana. The aim is to assess the extent to which alternative resources, other than mineral income, can be mobilised to fund economic growth and development in Botswana. Economic growth can be financed from domestic and / or external resources. With regard to domestic resources the distinction is made between private and public resources. External resources refer to foreign capital inflows.

The thesis is divided into four main areas. Firstly, resource mobilisation from the private sector is studied in the context of the McKinnon and Shaw model of financial liberalisation. Secondly, the role of fiscal policy in mobilising resources is studied by estimating elasticities and buoyancies of the Botswana tax system. Thirdly, the thesis assesses the impact of foreign capital inflows on saving, investment and economic growth in the economy of Botswana. Finally, our study fits the balance of payments constrained growth model to Botswana data in order to assess the extent to which the growth rate of income is constrained by the necessity to maintain equilibrium in the current account of the balance of payments.

Our study makes a number of findings. Firstly, that high real interest rates will not necessarily promote saving, investment, and economic growth. The major constraint to increased investment is found to lie in the failure of the financial system to transform financial resources into productive investment. Secondly, the policy of reduced taxes, the broadening of tax bases, and fiscal restraint seems to be justified because of the limited options for increasing revenues. The structure of government revenues is still dominated by proceeds from the mining sector. However, it is likely that as the private sector develops, the structure will be reversed in favour of non mining income. Thirdly, the effect of capital inflows, especially foreign direct investment, has been to promote capital formation in the economy of Botswana. Finally, the long run growth rate of income in Botswana is found to be approximated by the ratio of the growth rate of exports and the income elasticity of demand for imports.