Abstract
The aim of this study is to empirically investigate the dynamic relationships between mining revenue, government consumption, exchange rate and economic growth. Quarterly data from 1994 to 2012 were analysed using unrestricted vector autoregressive (VAR) model, consisting of impulse response function and variance decomposition. The results showed that mining revenue and exchange rate granger cause economic growth while consumption is caused by mining revenue and economic growth. The impulse response function showed the positive and negative response to mining shocks while variance decomposition indicates that mining revenue defines the volatility in economic growth and government consumption. The results reveal how vulnerable the economy of Botswana is to external shocks. We therefore suggest further structural reforms that promote non-mining sector development to diversify the export.
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