Chapter 4: Institutional Quality and Export Performance in an Emerging Market Economy: Evidence From Botswana

While Botswana has stable and strong institutions, the external trade balance was negative between 1960 and 1984 and between 2010 and 2014, which reflects poor export performance. Minor recoveries were experienced between 2016 and 2018. The growth rates of per capita gross domestic product (GDP) and GDP were less than 5%, on average, from 1990 until 2024. Evidence is required on whether the quality of institutions provides a robust and strong foundation for improving export flows and hence economic growth. Institutions were captured by the economic freedom of the World index and the polity score, which collectively measure a country’s institutional quality. The study considered the need for policy response to strengthen institutional quality and pick up export performance to support the country’s aspirations to attain higher income status by 2036. Using a trade openness framework, the study examined the contribution of institutional quality to export performance. A modified gravity model is employed, using data from the World Bank covering the period 1997–2022. The study confirmed both long run and joint causality between export performance and its covariates. The absence of short-run causality demonstrated the need for dynamic adjustments to correct disequilibrium. Institutional quality improved export performance, and its effect varied according to its measurement. Botswana’s export performance and hence flows to trading partners depended on remoteness, population, factor endowment and the country’s level of development. It is expected that Botswana strengthens democratic institutions to improve the trade balance.