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: 
New York
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, No. 1, March 2018, pp. 53-75
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.

Language: 
Country focus: 
Date created: 
Thursday, December 6, 2018