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Public and Private Sector Capital Formation and Economic Growth in Malawi

Author

Listed:
  • Harold P.E. Ngalawa

    (Macroeconomics Research Unit, School of Accounting, Economics and Finance, University of KwaZulu-Natal, Durban, South Africa)

  • Augustine Adebayo Kutu

    (School of Economics, College of Business and Economics, University of Johannesburg, Johannesburg, South Africa)

Abstract

This paper investigates the relative importance of public and private sector capital formation on economic growth in Malawi. Employing both the Two-Stage Least Squares and dynamic Generalised Method of Moments techniques on quarterly data from 1970Q1 to 2019Q4, the study finds that private sector capital formation makes a significant contribution to economic growth. The relationship between public sector capital formation and economic growth, however, is insignificant. The study finds no evidence of complementarity between public and private sector capital formation in Malawi. The study observes that private sector capital formation affects public sector capital formation, and not vice versa. Consistent with orthodox classical political economics, we recommend a small government for Malawi with a lean budget, especially since there are no observed benefits from large government spending in spurring economic growth. The only public sector investments that may be undertaken are public goods in areas associated with market failure.

Suggested Citation

  • Harold P.E. Ngalawa & Augustine Adebayo Kutu, 2024. "Public and Private Sector Capital Formation and Economic Growth in Malawi," International Journal of Economics and Financial Issues, Econjournals, vol. 14(5), pages 279-288, September.
    • Handle: RePEc:eco:journ1:2024-05-29
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    More about this item

    Keywords

    Endogenous Growth; Capital Formation; Public Sector; Private Sector;
    All these keywords.

    JEL classification:

    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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