Foreign Direct Investment and Economic Growth in Botswana: A Dynamic Causality Test

Aims: The study examines the relationship between Foreign Direct Investment (FDI) and economic growth using yearly time series data for the period 1980 to 2012.

Study Design: Multi-model econometric study.

Place and Duration of Study: Botswana, January 1980 to December 2012.

Methodology: The study uses Augmented Dickey-Fuller and the Phillips-Perron test to test the stationarity of the variables. Johansen and Juselius cointegration test was used to test for cointegration. Finally, the study uses the Granger causality test to determine whether FDI influences economic growth.

Conclusion: Using Johansen cointegration test applied on a dynamic model, we found out that there is a long-term term relationship between FDI and economic growth in Botswana. However, using the Granger causality tests, we were not able to confirm whether it is the FDI that is spurring economic growth or it is economic growth that is promoting FDI inflows.