An empirical analysis of Botswana’s import demand function: a disaggregated expenditure component approach

Abstract

This study investigates the relationship between Botswana’s imports and expenditure components: private consumption expenditure, government consumption expenditure, investment expenditure and expenditure on exports and real exchange rate, trade liberalization and the impact of the 2008-2009 global financial crisis. The study employs annual data from 1976 to 2017. Furthermore the study adopts the ARDL bounds testing approach to cointegration to examine the existence of long run relationship among the variables. The study finds that there is a long run relationship between aggregate imports, private consumption expenditure, government consumption expenditure, investment expenditure, exports, real exchange rate and trade liberalization. Government spending, private consumption expenditure, investment expenditure as well as trade liberalization are positive and significant both in the short run and long run. The coefficient of exports is negative and statistically insignificant. The real exchange rate has an insignificant positive effect on Botswana’s imports. Moreover the results reveal that the 2008-2009 financial crisis have no significant impact on Botswana’s aggregate imports. Lastly the results of the CUSUM and CUSUMSQ reveal that Botswana import demand function has been stable over the study period.