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Financial development in Botswana: in search of a finance-led growth response

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  • Nicholas M. Odhiambo

Abstract

In this paper, we examine the causality between financial development and sustainable growth in Botswana using the newly developed ARDL-bounds testing approach. Our results show that the causal relationship between financial development and sustainable economic growth is sensitive to the proxy used for measuring financial development. When the domestic credit to the private sector (DCP/GDP) is used as a proxy for financial development, a finance-led growth is found to prevail. However, when the ratio of broad money to GDP (M2/GDP) and the ratio of the bank deposits to GDP (BD/GDP) are used, a distinct growth-led finance seems to prevail. This finding shows that the relationship between financial development and economic growth in Botswana is not unambiguous, and that both the real sector and the financial sector of the economy should be developed simultaneously, in order to promote the overall development of the economy. This applies irrespective of whether the causal relationship is estimated in the short run or in the long run.

Suggested Citation

  • Nicholas M. Odhiambo, 2013. "Financial development in Botswana: in search of a finance-led growth response," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 5(4), pages 341-356.
    • Handle: RePEc:ids:ijsuse:v:5:y:2013:i:4:p:341-356
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    Cited by:

    1. Clement Olalekan Olaniyi, 2022. "On the transmission mechanisms in the finance–growth nexus in Southern African countries: Does institution matter?," Economic Change and Restructuring, Springer, vol. 55(1), pages 153-191, February.
    2. Odhiambo, Nicholas M, 2020. "Energy consumption and economic growth in Botswana: Empirical evidence from disaggregated data analysis," Working Papers 27659, University of South Africa, Department of Economics.
    3. Nicholas M. Odhiambo, 2021. "Energy consumption and economic growth in Botswana: empirical evidence from a disaggregated data," International Review of Applied Economics, Taylor & Francis Journals, vol. 35(1), pages 3-24, January.

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