Trade Specialization Dynamics in a Small Open Resource-Based Developing Economy: Empirical Evidence from Botswana

ABSTRACT

We analyze trade specialization dynamics in Botswana, applying the Galtonian regression and Markov matrix on the Lafay index for the period of 1998 to 2019. Galtonian regressions reveal de-specialization – Botswana gained a comparative advantage in industries for which it was initially not specialized and became less competitive in industries for which it was initially specialized. The industry hierarchy was altered only slightly due to persistence in trade specialization patterns. The Markov matrix reveals stronger upward industry mobility than downward industry mobility. De-specialization suggests slow-paced economic diversification, induced by import substitution in de-specialized industries, rather than by an expanding export base.

KEYWORDS:

• Botswana
• comparative advantage
• Lafay index
• resource-based economy
• trade specialization

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

The data used in this study are available upon request from the author.

Notes

¹ The replacement of FAP with CEDA represented a switch from the provision of grants to both citizen and non-citizen investors to the provision of subsidized loans to citizen investors only.

² The recent trend, showing progress in ED, should be interpreted cautiously since it may also be capturing slower growth in mineral output, which would have led to a reduced concentration on mining and increased diversification, even in the absence of meaningful growth in non-mining sectors.

³ The LFI has variants called contribution to the trade balance (CTB) (Danna-Buitrago and Stellian 2022; Stellian and Danna-Buitrago 2019). However, while the CTB indexes are derived from both country and world trade data, the LFI is based only on trade data for the country under analysis. Therefore, CTB indexes could not be considered in this article because available trade statistics are for Botswana only, and corresponding world trade statistics for the 4-digit harmonized system used in this study are unavailable.