Economic Development in Malawi

Introduction to Malawi

• Malawi is a very poor country with an annual income of $389 per capita (2018)
• Most of the population is rural and engaged in food production with limited use of fertilizers
• Shift from price supports to social cash transfer schemes (SCTS) for the poor

Economic Development

• Goals of economic development:
  • Income growth
  • Poverty and inequality reduction (welfare economics)
  • Increased agricultural productivity
• Concerns of economic development:
  • Economic demography (population)
  • Labor economics (education and health)
  • Organizational structure of the economy
  • Provision of goods and services
  • Natural resources and the environment

Historical Theories of Development

• Adam Smith: Markets and technological progress drive growth
• David Ricardo: Saving and investment are crucial for capital accumulation and growth
• Karl Marx: Capital accumulation by the wealthy fuels growth and widens inequality
• Harrod-Domar Model: Investment is the key engine of growth, but poor countries struggle to save
• W. Arthur Lewis: Dual-sector model, surplus labor from agriculture fuels industrial growth
• Gustav Ranis & John Fei: Agricultural growth is important for industrial development
• Theodore Schultz: "Efficient but poor" hypothesis, farmers in LDCs are efficient with limited resources
• Simon Kuznets & Richard Stone: Developed methods for measuring national output and economic growth
• Raul Prebisch & Hans Singer: Observed the deterioration of terms of trade for primary goods producers
• Albert Hirschman: Imbalances in supply and demand create pressure for growth
• John Mellor: Rural and urban consumption linkages are crucial for economic growth

Development Approaches after WWII

• Initial focus on foreign aid, capital, and foreign exchange proved insufficient
• Socialism was considered an alternative in some countries
• "Big push" idea: government planning was needed to kickstart industry in developing countries
• Soviet model: Exploited agriculture to build heavy industry through central planning
• Import-substituting industrialization (ISI): Developing countries protected domestic industries with high tariffs
• World Bank promoted structural adjustment in the 1980s, encouraging a shift to a market-based system and trade liberalization

The Washington Consensus

• A set of ten policy prescriptions for developing countries promoted by the World Bank and others in the late 1980s and early 1990s
• Aims to correct market distortions and promote growth through:
  • Fiscal discipline (balanced budget)
  • Reordering public spending priorities (education, health, infrastructure)
  • Tax reform
  • Liberalization of interest rates and exchange rates
  • Trade liberalization (reduced tariffs and quotas)
  • Foreign direct investment (FDI) liberalization
  • Privatization of public enterprises
  • Deregulation
  • Secure property rights