| Summary: | This study examines empirically the determinants of Foreign Direct Investment in Malawi, by
employing annual data that covered the period 1970-2016. The study used a dynamic model, the
Autoregressive Distributed Lag bounds-testing approach to co-integration and error correction
model, to explore these determinants. The study found that a long run relationship between Foreign
Direct Investment and the selected determinants: market size, infrastructure, human capital, broad
money, real exchange rate, population growth, government consumption, and inflation. The study
further found that the determinants that were significantly associated with attracting Foreign Direct
Investment in Malawi included infrastructure, broad money and government consumption.
Specifically, the study results found that government consumption is negatively and significantly
associated with Foreign Direct Investment both in the short and long run; infrastructure is
positively and significantly associated with Foreign Direct Investment in the long run; broad money
is positively and significantly associated with Foreign Direct Investment in the long run; and no
significant relationship was found between market size, human capital, real exchange rate,
population growth, and inflation both in the short and long run. These results have important policy
implications for Malawi. These include the need for Malawian authorities to focus on strategies
that create incentives to increase the level of physical infrastructure in the country; implementing
monetary policies, fiscal incentives and subsidies that promote financial development; as well as
promoting FDI-friendly government policies that minimise the impact of distortionary fiscal
policies such as distortionary taxation and deregulation.
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