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Macroeconomic Effects of Commodity Price Shocks in a Low‐income Economy: The Case of Tobacco in Malawi

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  • Bertha Chipo Bangara
  • John Paul Dunne

Abstract

A major concern for developing economies is a dependence on commodities when their prices are volatile as a major change in the international commodity price can have important implications for economic growth. While some cross‐country studies exist, there is lack of country specific studies that take into account the different characteristics of low‐income economies. This paper contributes to the growing literature by considering the case of Malawi and the macroeconomic impact of price shocks in its major export crop of tobacco. Using a structural vector autoregression (SVAR) approach on quarterly Malawian data from 1980:1 to 2012:4, the paper establishes that a positive tobacco price shock has a significant positive impact on the country's gross domestic product, decreasing consumer prices and inducing real exchange rate appreciation. The results are robust to alternative specifications of a SVAR on difference stationary data and cointegrating VAR. The cointegrating VAR confirms the existence of a long run‐relationship among the variables and causality that runs from tobacco prices.

Suggested Citation

  • Bertha Chipo Bangara & John Paul Dunne, 2018. "Macroeconomic Effects of Commodity Price Shocks in a Low‐income Economy: The Case of Tobacco in Malawi," South African Journal of Economics, Economic Society of South Africa, vol. 86(1), pages 53-75, March.
    • Handle: RePEc:bla:sajeco:v:86:y:2018:i:1:p:53-75
    DOI: 10.1111/saje.12186
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    Cited by:

    1. NTUNGILA, Floribert & PINSHI, Christian P., 2019. "Fluctuations de prix des matières premières et économie congolaise : manne d’espoir ou de malédiction ? [Fluctuations in commodity price and the congolese economy: hope or curse manna?]," MPRA Paper 95409, University Library of Munich, Germany.
    2. Nicholas Ngepah & Margarida Liandra Andrade da Silva & Charles Shaaba Saba, 2022. "The Impact of Commodity Price Shocks on Banking System Stability in Developing Countries," Economies, MDPI, vol. 10(4), pages 1-23, April.
    3. Zhang, Tianding & Du, Tianwen & Li, Jie, 2020. "The impact of China's macroeconomic determinants on commodity prices," Finance Research Letters, Elsevier, vol. 36(C).

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