IMPACT OF FOREIGN AND DOMESTIC INVESTMENT ON MANUFACTURING OUTPUT IN MALAWI

Abstract

Over the past three decades, the manufacturing sector of Malawi has not been performing well despite contribution from both foreign and domestic investment. Hence, this study examined the impact of foreign direct investment (FDI) and domestic investment on manufacturing output in Malawi. Autoregressive distributed lag (ARDL) model cointegration test results indicated that FDI, domestic investment and manufacturing value added (MVA) are cointegrated, meaning that they have a long run relationship. The ARDL long run model estimations indicted that domestic investment had a greater impact on manufacturing output as it affected output in the current year with a coefficient of 0.18 while FDI had an impact on manufacturing output after a period of one year with a coefficient of 0.018. Domestic investment granger caused manufacturing output while FDI had no causal impact on manufacturing output. As such, as government promotes policies that attract foreign investment, there is need to place more emphasis on pro-domestic investment policies in the long run in order to stimulate growth in manufacturing.