Financial deepening and investment in Africa : evidence from Botswana and Mauritius

The data used are taken from Mauritius and Botswana. Both single equation and systems estimates are used in the analysis. The results provide strong support for the hypothesis in the case of Mauritius. For Botswana, the complementarity has been between real money demand and real savings. This reflects the pattern and financing of investment in Botswana where the resource base was so potentially rich that the necessary resources were provided from abroad during the initial stages of mine development. For policy purposes, the basic lesson is that mutual dependence between money demand and investment implies that financial development complements economic growth. To stimulate economic growth, policy makers need to focus on measures that promote financial development. One of these, government self-restraint in the use of the economic surplus, has been a major feature of the economic success of both Botswana and Mauritius. (Author abstract)