Determinants and impact of private sector investment in Malawi: evidence from the 2006 investment climate survey

Over much of the last two decades, the economy of Malawi has been characterized by economic turbulence and uncertainty that has done serious damage to the private sector. Rapid liberalization exposed an unprepared private sector to potentially damaging forces. This paper draws upon the most comprehensive enterprise survey carried out in Malawi in recent years to assess the current state of private sector investment. We find the following key results: (1) low labor productivity is explained primarily by lack inputs per worker, rather than insufficient capital employed; (2) foreign competition in either domestic or export markets encourages reinvestment of current earnings; (3) firms with monopoly power are less likely to invest in increased capacity; and (4) high interest rates encourage Malawian firms to invest incrementally and using retained profits.