Abstract
Abstract : This dissertation analyses Malawi’s structural trade imbalance by empirically testing the validity of both the simplified as well as the Thirlwall & Hussain (1982) version which incorporates capital flows for the period from 1980 to 2017. The study uses the autoregressive distributed lag (ARDL) bounds-testing approach to cointegration, which has become prominent in analysing individual country studies of the Thirlwall law. Thirlwall’s law has become a favourite tool of macroeconomic analysis ever since it was first put forward by Thirlwall (1979). Thirlwall & Hussain (1982) developed an extended version of the law based on the argument that a country cannot achieve longer term growth without capital flows. The interest in studying the relationship of income, terms of trade and imports has culminated in extensive empirical literature hinging on Thirlwall’s law as the basis of investigation. The empirical results of this study show that there is a long-run relationship between imports, income and terms of trade. The results of both the basic and extended version show that the predicted economic growth for Malawi is 8.917% and 9.913% respectively. The average economic growth rate of the sample period is 3.548%. These results show that the BoP position of Malawi constrains economic growth. Policies that aim at shifting the elasticities of export and import flows will ease the pressure of the BoP constraint on output growth. Therefore, policy must focus on export-led strategies, as well as policies that aim at increasing volumes and improves quality and standards of the country’s products and services. Malawi must re-organise its production structure so that manufacturing forms a great share of exports. This will increase the demand for intermediate imports, which currently form the smallest component of imports.
M.Phil. (Industrial Policy)