Trade Policy and “Natural” Barrier-Induced Incidence of Protection and Aggregate Demand for Imports: Evidence from Malawi

Abstract

This study investigated the relative importance of trade policy and “natural” barrier-induced incidence of protection and its effects on trade for a landlocked Sub-Saharan African economy. The results showed that policy-induced protection has diminished with trade reforms whilst non-policy-induced protection remained high mainly because of high transport costs. An import demand system estimated using Johansen cointegration technique showed that natural barriers-induced incidence of protection has had strong disincentive effects on importing. Thus, Malawi needed to diversify and increase investment in strategic transport infrastructure to reduce “natural” barrier-induced trade costs for improved trade competitiveness. Key words : Trade policy; Trade barriers; Transport costs; Demand for imports; Incidence of protection