IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Constraints to growth in Malawi

  • Lea, Nicholas
  • Hanmer, Lucia
Registered author(s):

    This paper applies a growth diagnostics approach to identify the most binding constraints to private-sector growth in Malawi - a small, landlocked country in Southern Africa with one of the lowest per capita incomes in the world. The approach aims to identify the constraints (in terms of public policy, implementation, and investments) most binding on marginal investment, and therefore whose relaxation would have the largest impact on growth through the investment channel. The authors find that growth in Malawi has been primarily driven by the domestic multiplier effect from export revenues. The multiplier effect is particularly pronounced due to the high number of smallholder farmers, which produce Malawi’s main export crop, tobacco, and consequently results in the widespread and rapid transmission of agricultural export income. Furthermore, despite changes in the structure of agricultural production from estate to smallholder farming and liberalization of prices and finance, a longstanding relationship persists between exports in real domestic currency and overall gross domestic product. This central role of exports in creating domestic demand highlights the importance of the real exchange rate in Malawi’s growth story, which directly increases the strength of the export multiplier. The most pressing constraint to growth in Malawi continues to be the regime of exchange rate management. Despite good progress, there is compelling evidence that the rate is still substantially overvalued. Furthermore, it is also likely that the inflow of foreign aid - in excess of 50 percent of exports -contributes to the overvaluation through its large component of recurrent expenditures.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2009/10/27/000158349_20091027100216/Rendered/PDF/WPS5097.pdf
    Download Restriction: no

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5097.

    as
    in new window

    Length:
    Date of creation: 01 Oct 2009
    Date of revision:
    Handle: RePEc:wbk:wbrwps:5097
    Contact details of provider: Postal: 1818 H Street, N.W., Washington, DC 20433
    Phone: (202) 477-1234
    Web page: http://www.worldbank.org/
    Email:


    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:5097. 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: (Roula I. Yazigi)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.