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State Hegemony, Macroeconomic effects and Private Enterprise in Malawi

Author

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  • Kalonga Stambuli

    (surrey institute of global economics research)

Abstract

This paper investigates the rationale for proliferation of state enterprises, implications for public sector expansion in Malawi, the fiscal, monetary and balance of payments effects of the public sector and implications for private enterprise development. The paper finds that high levels of aid and fiscal revenues triggered by buoyant export markets in the 1960s anchored a Stalinist-Marxist style public sector expansion intended to build socialism alongside a state bureaucracy and one party politics. However, collapse of export commodity prices in the late 1970s repositioned the Malawi economy in such a way that costs of state hegemony emphasized its own economic vulnerability. Large fiscal imbalances emerged as apprehensions over loss of political control heightened by pressures of multiparty politics forced government to maintain the large public sector. Under pressure from oil price inflation, the influx of Mozambican refugees and drought, government resorted to higher levels of deficit monetisation and fiscal reallocations; giving priority to state enterprise subvention. These were manifested in reduced public investment, surging inflation and stagnation in per capita GDP. Implications of public sector expansion and government’s intransigence to reform include restrictive industrial, trade and financial policies that depressed savings, hindered private investments and encouraged capital flight. The policy also encouraged public sector inefficiency and resulted in high public deficits, increased foreign borrowing and recourse to credit from the domestic banking sector. These have had serious implications for crowding out the private sector and debt service and balance of payments problems.

Suggested Citation

  • Kalonga Stambuli, 2002. "State Hegemony, Macroeconomic effects and Private Enterprise in Malawi," Public Economics 0211001, EconWPA.
  • Handle: RePEc:wpa:wuwppe:0211001 Note: Type of Document - word; prepared on IBM PC; to print on HP;
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    References listed on IDEAS

    as
    1. Jan Willem Gunning & Paul Collier, 1999. "Explaining African Economic Performance," Journal of Economic Literature, American Economic Association, pages 64-111.
    2. Tanzi, Vito, 2000. "The role of the State and the quality of the public sector," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    3. Vito Tanzi, 1998. "Corruption Around the World: Causes, Consequences, Scope, and Cures," IMF Staff Papers, Palgrave Macmillan, vol. 45(4), pages 559-594, December.
    4. Ritva Reinikka & Paul Collier, 2001. "Uganda's Recovery : The Role of Farms, Firms, and Government," World Bank Publications, The World Bank, number 13850.
    5. International Monetary Fund, 1997. "Corruption and the Rate of Temptation; Do Low Wages in the Civil Service Cause Corruption?," IMF Working Papers 97/73, International Monetary Fund.
    6. Vito Tanzi, 2000. "The Role of the State and the Quality of the Public Sector," IMF Working Papers 00/36, International Monetary Fund.
    7. Tanzi, Vito, 2000. "The role of the State and the quality of the public sector," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 34714, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    8. Manning, Nick & Mukherjee, Ranjana & Gokcekus, Omer, 2000. "Public officials and their institutional environment - an analytical model for assessing the impact of institutional change on public sector performance," Policy Research Working Paper Series 2427, The World Bank.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    public sector economics; macroeconomics; state enterprise; private enterprises;

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • H - Public Economics

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