Financial Reforms and Consumption Behaviour in Malawi
The purpose of the study is to examine whether financial reforms implemented in the 1980's and 1990's altered the pattern of aggregate consumption behaviour in Malawi. More specifically, the study questions whether financial reforms affected consumption behaviour by reducing the excess sensitivity of changes in consumption to changes in current income using the Permanent income hypothesis (PIH) framework. If it happens that excess sensitivity does not reduce, the paper explores further whether the failure is due to liquidity constraints or myopia. This study is unique from the rest in the sense that new constructed time series of financial reform indices are used in the estimation of the consumption function. The study finds that PIH of aggregate consumption behaviour does not exist in Malawi. Most of the consumers follow the "rule-of-thumb" of consuming their current income partly due to liquidity constraints. Although, we demonstrate that the effects of financial reforms on consumption behaviour are due to both liquidity constraints and myopia, the increase in consumption in Malawi can be explained along other factors than financial liberalisation. The excess sensitivities obtained are larger than what has been obtained in developed countries as well as other less developed countries. Liberalisation was implemented on the background of weak institutions and unstable macroeconomic environment.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: Newlands on Main, F0301 3rd Floor Mariendahl House, cnr Campground and Main Rds, Claremont, 7700 Cape Town|
Phone: 021 671-3980
Fax: +27 21 671 3912
Web page: http://www.econrsa.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Campbell, John Y & Mankiw, N Gregory, 1990.
"Permanent Income, Current Income, and Consumption,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 8(3), pages 265-79, July.
- John Y. Campbell & N. Gregory Mankiw, 1987. "Permanent Income, Current Income, and Consumption," NBER Working Papers 2436, National Bureau of Economic Research, Inc.
- Campbell, John Y. & Mankiw, N. Gregory, 1990. "Permanent Income, Current Income, and Consumption," Scholarly Articles 3353762, Harvard University Department of Economics.
- Lea, Nicholas & Hanmer, Lucia, 2009. "Constraints to growth in Malawi," Policy Research Working Paper Series 5097, The World Bank.
- Carmen M. Reinhart & Ioannis Tokatlidis, 2003.
"Financial Liberalisation: The African Experience,"
Journal of African Economies,
Centre for the Study of African Economies (CSAE), vol. 12(Supplemen), pages 53-88, September.
- Reinhart, Carmen & Tokatlidis, Ioannis, 2005. "Before and After Financial Liberalization," MPRA Paper 6986, University Library of Munich, Germany.
- Reinhart, Carmen & Tokatlidis, Ioannis, 2000. "Financial Liberalization: The African Experience," MPRA Paper 13423, University Library of Munich, Germany.
- Bayoumi, Tamim A, 1993. "Financial Deregulation and Consumption in the United Kingdom," The Review of Economics and Statistics, MIT Press, vol. 75(3), pages 536-39, August.
- Thomas Gries & Manfred Kraft & Daniel Meierrieks, 2008.
"Linkages between Financial Deepening,Trade Openness and Economic Development: Causality Evidence from Sub-Saharan Africa,"
Working Papers CIE
15, Paderborn University, CIE Center for International Economics.
- Gries, Thomas & Kraft, Manfred & Meierrieks, Daniel, 2009. "Linkages Between Financial Deepening, Trade Openness, and Economic Development: Causality Evidence from Sub-Saharan Africa," World Development, Elsevier, vol. 37(12), pages 1849-1860, December.
- Qi, Li & Prime, Penelope B., 2009. "Market reforms and consumption puzzles in China," China Economic Review, Elsevier, vol. 20(3), pages 388-401, September.
- Janine Aron & John Muellbauer, 2000.
"Financial liberalisation, consumption and debt in South Africa,"
CSAE Working Paper Series
2000-22, Centre for the Study of African Economies, University of Oxford.
- Janine Aron & John Muellbauer, 2000. "Financial Liberalization, Consumption and Debt in South Africa," Economics Series Working Papers WPS/2000-22, University of Oxford, Department of Economics.
- Harold Ngalawa & Nicola Viegi, 2013.
"Interaction of Formal and Informal Financial Markets in Quasi-Emerging Market Economies,"
201306, University of Pretoria, Department of Economics.
- Ngalawa, Harold & Viegi, Nicola, 2013. "Interaction of formal and informal financial markets in quasi-emerging market economies," Economic Modelling, Elsevier, vol. 31(C), pages 614-624.
- Harold P.E. Ngalawa and Nicola Viegi, 2013. "Interaction of Formal and Informal Financial Markets in Quasi-Emerging Market Economies," Working Papers 326, Economic Research Southern Africa.
- Kabango, Grant P. & Paloni, Alberto, 2010.
"Financial liberalisation and industrial development in Malawi,"
SIRE Discussion Papers
2010-22, Scottish Institute for Research in Economics (SIRE).
- Grant P. Kabango & Alberto Paloni, 2010. "Financial liberalisation and industrial development in Malawi," Working Papers 2010_08, Business School - Economics, University of Glasgow.
- Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
- Shea, J., 1993.
"Myopia, Liquidity Constraints, and Aggregate Consumption: A Simple Test,"
9305, Wisconsin Madison - Social Systems.
- Shea, John, 1995. "Myopia, Liquidity Constraints, and Aggregate Consumption: A Simple Test," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 798-805, August.
- Lourenco Senne Paz, 2006. "Consumption in Brazil: myopia or liquidity constraints? A simple test using quarterly data," Applied Economics Letters, Taylor & Francis Journals, vol. 13(15), pages 961-964.
- Agell, Jonas & Berg, Lennart, 1996. " Does Financial Deregulation Cause a Consumption Boom?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(4), pages 579-601, December.
- Musila, Jacob Wanjala, 2002. "An econometric model of the Malawian economy," Economic Modelling, Elsevier, vol. 19(2), pages 295-330, March.
- Ang, James B., 2011. "Finance and consumption volatility: Evidence from India," Journal of International Money and Finance, Elsevier, vol. 30(6), pages 947-964, October.
- Konstantinos Drakos, 2002. "Myopia, Liquidity Constraints, and Aggregate Consumption: The Case of Greece," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 27(1), pages 97-105, June.
- John Y. Campbell & N. Gregory Mankiw, 1989.
"Consumption, Income and Interest Rates: Reinterpreting the Time Series Evidence,"
in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246
National Bureau of Economic Research, Inc.
- John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence," NBER Working Papers 2924, National Bureau of Economic Research, Inc.
- Ray Barrell & E. Philip Davis, 2007. "Financial Liberalisation, Consumption And Wealth Effects In Seven Oecd Countries," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(2), pages 254-267, 05.
- Marjorie Flavin, 1985. "Excess Sensitivity of Consumption to Current Income: Liquidity Constraints or Myopia?," Canadian Journal of Economics, Canadian Economics Association, vol. 18(1), pages 117-36, February.
- Adrian Blundell-Wignall & Frank Browne & Stefano Cavaglia, 1991. "Financial Liberalisation and Consumption Behaviour," OECD Economics Department Working Papers 81, OECD Publishing.
- Eric Girardin & Lucio Sarno & Mark P. Taylor, 2000. "Private consumption behaviour, liquidity constraints and financial deregulation in France: a nonlinear analysis," Empirical Economics, Springer, vol. 25(2), pages 351-368.
- Roger Kelly & George Mavrotas, 2008. "Savings and financial sector development: panel cointegration evidence from Africa," The European Journal of Finance, Taylor & Francis Journals, vol. 14(7), pages 563-581.
- Panicos Demetriades & Kul B. Luintel, 1995.
"The Direct Costs of Financial Repression: Evidence from India,"
Keele Department of Economics Discussion Papers (1995-2001)
95/12, Department of Economics, Keele University.
- Panicos O. Demetriades & Kul B. Luintel, 1997. "The Direct Costs Of Financial Repression: Evidence From India," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 311-320, May.
- Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
- repec:fth:harver:1435 is not listed on IDEAS
When requesting a correction, please mention this item's handle: RePEc:rza:wpaper:306. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Charles Tanton)
If references are entirely missing, you can add them using this form.