Abstract
Malawi is a landlocked least developed that is densely populated and where most people still depend on rain-fed agriculture for livelihood. The slowdown of growth in the late 1970s and 1980s forced the government to resort to both external and domestic debt to finance development. This study explores the effect of public debt on private investment in Malawi for the period 1991-2020. The Autoregressive Distributed Lag (ARDL) bounds test to co-integration is used for the empirical analysis. The results suggest a positive long-run and short-run relationship between domestic debt and private investment, which is contrary to theoretical expectations. However, the Granger causality test suggests that this relationship is not casual but a co-movement. The study recommends that the government of Malawi should adopt policies that open the country to trade and recommends that the government implement strict policies, checks and balances on project implementations to ensure that there are positive returns of borrowed funds. It also recommends further study on the other factors that affect private investment in Malawi.
Key Words: Economic growth, domestic debt, private investment, ARDL, Malawi