Exchange rate changes and trade balance adjustments in Malawi

This paper analyzes how trade balance responds to changes in exchange rates for Malawi. A trade balance model involving the demand for Malawi exports and imports is estimated using time-series data from 1968 to 1998. The estimated results show that devaluation will worsen the trade balance in the short run and improve it only slightly in the long run. This suggests that perhaps aggregate-demand management should complement exchange-rate policy for the trade balance to improve markedly.