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

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. JEL Classification: E3, F18, F31, F35

Structural change in Thailand’s tobacco leaf exports: Implications of tobacco control in ASEAN countries

“…It has affected tobacco leaf exports in Malawi, Zimbabwe, and Turkey (Diao, Robinson, Thomas, & Wobst, 2002). More specifically, in the case of Malawi-a densely populated country in Africa-the tobacco price shock affected tobacco leaf exports (Bangara & Dunne, 2018). The country's export tariff policy also had an impact on the income of tobacco farmers (Sahn, Van Frausum, & Shively, 1994).…”

Impak Harga Minyak Sawit terhadap Pertumbuhan Sektor Pertanian

“…Harga pasaran sesuatu komoditi memberi impak kepada aktiviti ekonomi disebabkan faktor harga komoditi tersebut yang turun naik di pasaran (Ab Rahman et al 2007;Ji & Fan 2012;Bangara & Dunne 2018). Sebagai negara penerima harga bagi harga minyak sawit mentah dunia, Malaysia telah menyaksikan ketidaktentuan pada harga sawit di pasaran global.…”

“…Di negara-negara Afrika misalnya, Zimbabwe dan Zambia sangat terkenal dengan sektor komoditi galian seperti kuprum, platinum dan emas, Malawi pula terkenal dengan pengeluaran komoditi tembakau. Selain itu, minyak mentah juga menjadi komoditi utama bagi negara-negara di Selatan Afrika, negara-negara Semenanjung Arab dan Arab Teluk (Tsaurai 2018;Bangara & Dunne 2018;Yoshino & Taghizadeh-Hesary 2014;Chikalipah 2019;Nurmanto et al 2019).…”

The effect of commodity price shock on the Ethiopian economy

“…The effects are also found to be larger for less developed countries, those heavily dependent on commodity exports and economies with fixed exchange rate regimes. Bangara and Dunne (2018) investigated the macroeconomic impacts of price shocks in the major export crop of tobacco for the Malawian economy using structural vector autoregressive model over the period of 1980Q1-2012Q4. The results indicates that a positive tobacco price shock has a significant and positive impact on the country's gross domestic product, negative effect on consumer price index and induces the exchange rate to appreciate.…”