Financial development and economic growth in Botswana: New evidence from disaggregated data

Abstract

Abstract In this study, the causal relationship between financial development and economic growth in Botswana is re-examined using disaggregated data from 1980 to 2020 on financial development. The importance of financial development and economic growth in achieving Sustainable Development Goals (SDGs) cannot be overemphasised. The study used the Autoregressive Distributed Lag (ARDL) approach to cointegration and the ECM-based Granger causality test to examine this linkage. Financial development is measured at an aggregate level by the Financial Development Index (FDI) and at a disaggregate level by the Financial Institution Index (FII) and Financial Market Index (FMI) from the International Monetary Fund (IMF) financial development index database. The study failed to find any causality between financial development and economic growth during the study period. The results apply, irrespective of proxy used to measure the level of financial development and the time frame. This finding points to the importance for Botswana to continue with the Vision 2036 and the National Development Plans that focus, among other goals, on economic growth, to realise an increase in gross fixed capital formation and financial development.