ASSESSMENT OF THE IMPACT OF FINANCIAL DEVELOPMENT ON INTERNATIONAL TRADE COMPETITIVENESS OF MALAWI SUGAR: AN ARDL APPROACH

Abstract

This study investigates the impact of financial sector development on the international competitiveness of Malawi sugar using the ARDL bounds testing approach to co-integration. The study uses annual data for the period 1980 to 2010 and the co-integration test results indicate a long-run negative relationship between financial sector development and international trade competitiveness of Malawi Sugar. The study established that in the short-run, the competitiveness of sugar was sensitive to the financial sector development and real effective exchange rate, while in the long-run, it was sensitive to the financial sector development, real effective exchange rate and sugarcane production. These results suggest that besides financial liberalization, there is need for policy to focus on other financially intensive trades with the aim of maximizing the positive effects that come along with financial development. On the other hand, the long-run statistical significance of sugarcane production entails that efforts to increase its production may be effective in increasing the competitiveness of Malawi sugar.