Macroeconomic Effects of Commodity Price Shocks in a Low-income Economy: The Case of Tobacco in Malawi

Macroeconomic Effects of Commodity Price Shocks in a Low-income Economy: The Case of Tobacco in Malawi

Author: 
Bangara, Bertha Chipo
Place: 
Chichester
Publisher: 
John Wiley & Sons Publishing Company
Date published: 
2018
Record type: 
Responsibility: 
Dunne, John Paul, jt. author
Journal Title: 
South African Journal of Economics
Source: 
South African Journal of Economics, Vol. 86 Issue No. 1, March 2018, 53-75
ISSN: 
1813-6982 (Online)|0038-2280 (Print)
Abstract: 

A major concern for developing economies is a dependence on commodities when their prices are volatile as a major change in the international commodity price can have important implications for economic growth. While some cross-country studies exist, there is lack of country specific studies that take into account the different characteristics of low-income economies. This paper contributes to the growing literature by considering the case of Malawi and the macroeconomic impact of price shocks in its major export crop of tobacco. Using a structural vector autoregression (SVAR) approach on quarterly Malawian data from 1980:1 to 2012:4, the paper establishes that a positive tobacco price shock has a significant positive impact on the country's gross domestic product, decreasing consumer prices and inducing real exchange rate appreciation. The results are robust to alternative specifications of a SVAR on difference stationary data and cointegrating VAR. The cointegrating VAR confirms the existence of a long run-relationship among the variables and causality that runs from tobacco prices.

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Country focus: 

CITATION: Bangara, Bertha Chipo. Macroeconomic Effects of Commodity Price Shocks in a Low-income Economy: The Case of Tobacco in Malawi . Chichester : John Wiley & Sons Publishing Company , 2018. South African Journal of Economics, Vol. 86 Issue No. 1, March 2018, 53-75 - Available at: http://library.au.int/macroeconomic-effects-commodity-price-shocks-low-income-economy-case-tobacco-malawi-1