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GTAP Resource #3950

"Diamonds aren’t Forever: A Dynamic CGE Analysis of the Mineral Sector in Botswana"
by Go, Delfin S, Scott McDonald and Karen Thierfelder

Botswana is heavily dependent upon export revenue from diamond sales. The financial crisis of 2008-2009 reduced export revenue and Botswana’s GDP declined. Compared to other mineral producing regions, Botswana was able to dampen the effect of the financial crisis by increasing public expenditures. However, high fiscal deficits will be difficult to sustain. Botswana will need to consider the effects of new and existing mining projects on macroeconomic aggregates such as tax revenues, employment and GDP.

In this paper, we analyze the effects of changes in production and trade of diamonds in Botswana using a dynamic computable general equilibrium (CGE) model. We address the question, “what is the optimal extraction rate when producers make inter-temporal decisions?” The insights from this analysis also will be useful for other developing countries with natural resource deposits.

To focus on mineral sectors in Botswana, we develop an aggregate social accounting matrix (SAM) for 2007, with agriculture, mining, diamonds, manufacturing and services sectors. Factor markets include labor, capital, land and natural resources. There are rural and urban households as well as an enterprise account. To construct the SAM, we use national accounts for Botswana, the production relationships evident in the latest input-output table for Botswana, and we estimate transaction flows between factors, households, the government and the rest of the world. We include information on remittances, income flows associated with foreign ownership of factors, and aid transfers.

The dynamic simulation framework is an expanded version of the 1-2-3t model developed in Devarajan and Go (1998) where producer and consumer decisions are both intra- and inter-temporally consistent. The representative consumer maximizes the present value of the utility of consumption; producers maximize the present value of profits, and there are forward-looking investment and adjustment cost functions.

Resource Details (Export Citation) GTAP Keywords
Category: 2012 Conference Paper
Status: Published
By/In: Presented at the 15th Annual Conference on Global Economic Analysis, Geneva, Switzerland
Date: 2012
Created: Thierfelder, K. (4/30/2012)
Updated: Thierfelder, K. (4/30/2012)
Visits: 2,635
- Economic growth
- Economic development
- Africa (Southern)

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