Constraints to Growth in Malawi

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.

Bibliographic Details

Main Authors:	Lea, Nicholas, Hanmer, Lucia
Format:	Policy Research Working Paper biblioteca
Language:	English
Published:	2009-10-01
Subjects:	ACCOUNTING, AGGREGATE DEMAND, AGRICULTURE, ASSET BASE, AUCTION, AUCTION FLOOR, AUCTION PRICE, BALANCE OF PAYMENTS, BANKING SECTOR, BARRIERS TO ENTRY, BASE YEAR, BINDING CONSTRAINT, BINDING CONSTRAINTS, CAPITAL ACCOUNT, CAPITAL FLIGHT, CAPITAL GROWTH, CARTEL, CENTRAL BANK, CHECKS, CIVIL WAR, COMMODITY, COMMODITY PRICES, COMPETITIVENESS, CONTRACT ENFORCEMENT, COST OF CAPITAL, COST OF FINANCE, CREDIT INFORMATION, CURRENT ACCOUNT DEFICIT, DEBT, DEBT SOURCE, DEPOSIT, DEPOSIT ACCOUNTS, DEPOSIT INTEREST, DEPOSIT INTEREST RATES, DEREGULATION, DERIVATIVE, DEVALUATION, DEVALUATIONS, DEVELOPING COUNTRIES, DEVELOPMENT ASSISTANCE, DEVELOPMENT ECONOMICS, DEVELOPMENT STRATEGY, DISBURSEMENTS, DOLLAR PRICE, DOLLAR PRICES, DOLLAR VALUE, DOMESTIC CREDIT, DOMESTIC CURRENCY, DOMESTIC DEBT, DOMESTIC ECONOMY, DOMESTIC FINANCIAL MARKETS, DOMESTIC MARKET, DOMESTIC PRICE, DOMESTIC PRICES, ECONOMIC THEORY, ECONOMIES OF SCALE, ELASTICITY, EQUIPMENT, EXCHANGE MARKETS, EXCHANGE RATES, EXPORT GROWTH, EXPORT MARKETS, EXPORT SECTOR, EXPORT SECTORS, EXPORTERS, EXPORTS, EXPROPRIATION, EXPROPRIATIONS, EXTERNAL FINANCING, EXTERNALITIES, EXTERNALITY, FACE VALUE, FACTORS OF PRODUCTION, FINANCIAL INSTITUTION, FINANCIAL INSTITUTIONS, FINANCIAL REFORM, FINANCIAL SECTOR, FINANCIAL SERVICES, FINANCIAL SYSTEM, FISCAL DEFICIT, FISCAL DISCIPLINE, FIXED CAPITAL, FIXED EXCHANGE RATE, FLOATING EXCHANGE RATE, FOREIGN CURRENCY, FOREIGN EXCHANGE, FOREIGN EXCHANGE MARKET, FOREIGN EXCHANGE RESERVES, FOREIGN INVESTORS, FUTURE GROWTH, GDP, GDP DEFLATOR, GDP PER CAPITA, GOVERNMENT BORROWING, GOVERNMENT DEFICIT, GOVERNMENT EXPENDITURE, GOVERNMENT EXPENDITURES, GOVERNMENT FINANCES, GOVERNMENT INTERVENTION, GOVERNMENT POLICIES, GOVERNMENT POLICY, GROSS DOMESTIC PRODUCT, GROSS FIXED CAPITAL FORMATION, GROWTH RATES, HEDGES, HOLDINGS, HOUSEHOLD WEALTH, HUMAN CAPITAL, HUMAN DEVELOPMENT, ILLIQUIDITY, INCOME, INDUSTRIALIZATION, INFLATION, INSTRUMENT, INSURANCE, INTEREST INCOME, INTEREST PAYMENTS, INTEREST RATE, INTEREST RATE PARITY, INTEREST RATE SPREAD, INTEREST RATES, INTERNATIONAL BANK, INTERNATIONAL DEVELOPMENT, INTERNATIONAL FINANCIAL STATISTICS, INTERNATIONAL MARKETS, INTERNATIONAL TRADE, INVENTORY, INVESTING, INVESTMENT CLIMATE, INVESTMENT DECISIONS, INVESTMENT RATES, INVESTOR PROTECTION, LACK OF COMPETITION, LAND HOLDING, LAND POLICY, LEGAL RIGHTS, LENDING INTEREST RATE, LENDING INTEREST RATES, LIABILITY, LIBERALIZATION, LIQUIDITY, LIQUIDITY CONSTRAINT, LIVING STANDARDS, LOAN, LOAN QUALITY, MACROECONOMIC ENVIRONMENT, MACROECONOMIC INSTABILITY, MACROECONOMIC MANAGEMENT, MACROECONOMIC RISK, MACROECONOMIC STABILITY, MARKET FAILURE, MARKET FAILURES, MARKET PRICE, MIGRANT LABOR, MONETARY FUND, MONOPOLY, MONOPOLY RENTS, MULTIPLIER EFFECT, MULTIPLIER EFFECTS, OIL PRICE, OPEN ECONOMIES, OPTIMIZATION, OUTPUT, OVERHEAD COSTS, OVERVALUATION, PER CAPITA INCOMES, POLITICAL ECONOMY, POLITICAL STABILITY, POSITIVE EFFECTS, POWER PARITY, PREFERENTIAL ACCESS, PRICE ELASTICITY, PRICE ELASTICITY OF SUPPLY, PRICE STABILITY, PRIVATE INVESTMENT, PRODUCT MARKETS, PRODUCTION INCREASES, PROFITABILITY ANALYSIS, PROPERTY RIGHTS, PUBLIC BORROWING, PUBLIC FINANCE, PUBLIC INVESTMENT, PUBLIC INVESTMENTS, PUBLIC POLICY, PUBLIC REGISTRY, PURCHASING POWER, RAPID GROWTH, RATE OF RETURN, RATE OF RETURN ON CAPITAL, REAL EXCHANGE RATE, REAL GDP, REAL INTEREST, REAL INTEREST RATES, RECURRENT EXPENDITURE, RECURRENT EXPENDITURES, REMITTANCE, REMITTANCES, RENT SEEKING, RESERVE, RESERVE REQUIREMENT, RETURNS, RULE OF LAW, RURAL MARKETS, SHAREHOLDER, SMALLHOLDER AGRICULTURE, SOCIAL DEVELOPMENT, STOCKS, STRUCTURAL CHANGE, TAX, TAX RATE, TAXATION, TOTAL FACTOR PRODUCTIVITY, TOTAL REVENUE, TRADE BALANCE, TRADE DEFICIT, TRADE REFORMS, TRADING, TRANSPARENCY, TREASURY, TREASURY BILLS, VALUE ADDED, VOLATILITY, WAGES, WEALTH, WORLD MARKET,
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20091027100216 http://hdl.handle.net/10986/4289
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