Potential impact of financial reforms on savings in Botswana: An empirical analysis using a VECM approach

This paper attempts to briefly review the financial impact of the recent economic reforms in Botswana. In particular, it investigates the influence of these reforms on savings, and tests the financial repression hypothesis. The paper examines such effects through empirical examination using the Johansen VECM approach and annual data running from 1971 to 2003. While private savings have shown a remarkably increasing trend in recent years, our preliminary empirical results show that savings are positively related to real interest rates in Botswana. Additionally, while using a carefully constructed composite index and a considerable list of controlling variables, we observe a positive and significant link between private savings and the financial liberalization index. Finally, unlike other studies where cross-country time series data is utilized, of which the predicted results may fail to capture country-specific developments and institutional differences, this study aims to provide a reasonable country-level investigation.\ud \u