Public and Private Sector Capital Formation and Economic Growth in Malawi

Harold P.E. Ngalawa and Augustine Adebayo Kutu
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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

International Journal of Economics and Financial Issues, 2024, vol. 14, issue 5, 279-288

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.

Keywords: Endogenous Growth; Capital Formation; Public Sector; Private Sector (search for similar items in EconPapers)
JEL-codes: C18 E61 O43 (search for similar items in EconPapers)
Date: 2024
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