4. BLOCK STRUCTURE AND PRINCIPAL FEATURES

A summary of the specification of the model is given in tabular form in Table 1, which shows, among other things, the block structure of the model and the principal endogenous variables which are relevant to Botswana's economic situation.

The specification incorporates the elements of supply-side economics by including supply constraints in respect of the various endogenous variables. The specification also incorporates the country's exogenous policy scenarios such as the incomes and wages policy.

Table 1

BLOCK STRUCTURE AND STRUCTURAL RELATIONSHIPS

No. of Block	Block Name	Structural Equation	Explanatory Variables	Form of Equation	To be Estimated as	Viable Estimation Technique
1	Output 1	Agriculture	rainfall, labour, capital, time	nonlinear (logarithmic)	simultan.	ML/nonlinear 3SLS, nonlinear 2SLS
	2	Manufacturing	labour capital GDP share	Ditto	Ditto	Ditto
	3	Mining	labour, capital	"	"	"
	4	Utilities	rainfall, labour capital	"	"	"
	5	Construction	labour, capital	"	"	"
	6	Trade & Hotels	labour, capital	"	"	"
	7	Transport	labour, capital	"	"	"
	8	Financial institu.	labour, capital	"	"	"
	9	Social & Pers. svc	labour, capital	"	"	"
	10	General Gvt.	labour, capital	"	"	"
2	LABOUR 11	Man-hours agriculture	output, time	Nonlinear (logarithmic)	Simultan.	ML/nonlinerar 2SLS Nonlinerar 3SLS
	12	Man-hours utilities	output, capital	"	"	"
	13	Man-hours transport	output, capital	"	"	"
	14	Man-hours Government	output, capital	"	"	"
	15	Man-hours Social Sv	output, capital	"	"	"
	16	Man-hours mining	output, capital wages rate	"	"	"
	17	Man-hours manufac	output, capital wages rate	"	"	"
	18	Man-hours construct.	output, capital wages rate	"	"
	19	Man-hours trade	output, capital wages rate	"	"	"
	20	Man-hours financial	output, capital wages rate	"	"	"
	21	Formal employment	GDP, GDP , lagged endogenous, lagged capital, time	logarithmic	single	OLS/ML
	22	Traditional agr. & informal employment	GDP, GDP , lagged endogenous, time	"	"	"
3	CONSUMPTION (on GDP)
	23	Durables and nondurables	disposable income, lagged consum., credit terms	logarithmic	single	OLS/ML
	24	Service con sumption	disposable income, lagged consumption
4	INVESTMENT-FIXED Investment
	25	Agriculture	output, relative price of capital, time and lagged endogenous	| Non-linear	simultaneous equation	ML/2SLS
	26	Manufacturing	"	"	"	ML/Nonlinear 2SL Nonlinear 3SLS
	27	Mining	"	"		"
	28	Utilities	"	"	"	"
	29	Construction		"	"	"
	30	Trade	output, relative price of capital time and lagged , endogenous	nonlinear	simultaneous equation	ML/Nonlinear 2SL Nonlinear 3SLS
	31	Transport		"	"
	32	Financial institutions	"	"	"
	33	Social & Pers. Svc.	"	"	"
	34	Government	"	"	"
	35	Inventory investment	GDP, time, lagged endogenous	logarithmic	single	OLS/ML
5	THE GOVERNMENT SECTOR
	36	Customs revenue	lagged imports, time	linear	"	"
	37	Taxes revenue	non-traditional agri. GDP, time	"	"	"
	38	Rent, royal ties and dividends revenue	long term interest rate, public sector lending to private sector, Mining GDP, time	"	"	"
	39	Govt. debt	govern. borrowing, debt servicing, net lending to parastatals interest received	"	"	"
6	PRICES
	40	Consumer price index	import price index exchange rate lagged endogenous, money stock, labour productivity, lagged import price index, lagged exchange rate, lagged labour productivity	logarithmic	"	"
	41	GDP Deflator- National	labour productivity, import price index, lagged endogenous, real exchange rate	logarithmic	single	OLS/ML
	42	Agric. GDP deflator	import price index, lagged import price index, sectoral labour productivity	"	"	"
	43	Mining deflator	import price index, National GDP deflator	"	"	"
	44	Manufacturing deflator	import price index, National GDP deflator	"	"	"
	45	Utilities deflator	sectoral average wages, sectoral labour productivity	"	"	"
	46	Construction deflator	import price index, lagged import price index, sectoral labour productivity	"	"	"
	47	Commerce deflator	sectoral average wages, labour productivity, import price index	"	"	"
	48	Transport deflator	import price index, lagged index, sectoral import price labour productivity, sectoral average wages	"	"	"
	49	Finance deflator	sectoral average wages, sectoral labour productivity, lagged sectoral labour productivity, import price index	"	"	"
	50	Services deflator	sectoral average wages, sectoral labour productivity, lagged sectoral labour productivity, import price index	"	"	"
	51	General Gvt. deflator	import price index sectoral labour productivity, sectoral lagged labour productivity, sectoral average wages	"	"	"
	52	Fixed formation capital deflator	import price index, price deflators of agri., mining, manufacturing, utilities, transport and finance	"	"	"
| 7	MONETARY SECTOR			"	"	"
	53	Demand for money	average interest rate, GDP, CPI.	"	"	"
	54	Total deposits	GDP, relative interest rate of deposits, availability of bank facilities, lagged endogenous	"	"	"
	55	Excess Reserves	demand for credit, risk of lending money, rates of interest on loans, easiness of obtaining funds from central banks, lagged |endogenous	"	"	"
	56	Domestic credit	commercial banks liquidity, gvt. cash balance	"	"	"
8.	EXTERNAL TRADE
	57	Producer price of beef	export price of beef, exchange rate, BMC margin, CPI	"	"	ML/OLS
	58	Producer price copper	export price of copper, exchange rate BCL margin	"	"	OLS/ML
	59	Producer price of nickel	export price of nickel, exchange rate BCL margin	"	"	"
	60	Diamond production	labour, capital, time	logarthimic	single	OLS/ML
	61	Copper-Nickel	labour, capital,	"	"	"
	62	Beef production	rainfall, lagged price of beef, lagged index of prices of |arable agricultural products	"	"	"
	63	Imports of consumer goods	distribution of income, total private and govt. consumption index of production of food, lagged export index	"	"	"
	64	Imports of intermediate goods	GDP, lagged real exports, foreign transfers, net inflows	"	"	"
	65	Imports of capital goods	fixed capital formation time	"	"	"
9	INCOMES, TAXES AND WAGES
	66	Urban household income	non-traditional agr. GDP, time, lagged endogenous	Linear
	67	Rural household income	traditional agri. GDP time, lagged endogenous	"	"	"
	68	Gross surplus of public corporations	gross public corporations product, public corporation, labour time	"	"	"
	69	Private corporate profits	gross private sector product, private sector labour income, unemployment	"	"	"
	70	Personal taxes	lagged personal income tax, total personal income minus government transfer payments, contribution to pension schemes	"	"	"
	71	Corporate taxes	government corporate tax rate, corporate profits	"	"	"
	72	Pensions	the tax rate of contribution of pension scheme, total local employees wage bill	"	"	"
	73	Gratuities	the gratuity rate, total expatriates' wage bill	"		"