The impact of economic infrastructure on long term economic growth in Botswana

Abstract

The growth rate for the Botswana economy has slowed down in recent years. This has been explained by weak global demand in minerals, subdued commodity prices and persistent electricity supply problems. The government is making efforts to diversify the economy to tap from other sources of growth. The government has come with two initiatives to boast growth: increasing expenditure on roads and improved generation of electricity. Literature has failed to agree on the causal linkage between growth and infrastructure development. Previous studies employed different measures of infrastructure development and models resulting in conflicting findings. As a point of departure this study uses a log linear model and different measures of growth and infrastructure to examine the link between the two variables in the context of Botswana. Using vector error correction model and Ordinary Least Squares the study finds that long term economic growth is explained by both measures of infrastructure (electricity distribution and maintenance of roads). The impact of the former was more pronounced than the impact of the later. Evidence supports the infrastructure led growth hypothesis.