# **2. Background and Literature Review**

_2.1 Context: Trade policies in Malawi and neighboring countries_ Agriculture continues to be a dominant sector of the Malawian economy, contributing about a third of the GDP and accounting for about 80 percent of export revenue. The agriculture sector provides livelihoods for about 85 percent of the Malawians residing and engaged in agriculture to some extent. Agriculture is the biggest employer and source of income for households as it employs about 64.1 percent of the labor force (World Bank, 2018). Therefore, changes to regulations in marketing and trade could have significant implications for household welfare and poverty for the bulk of the Malawi population dependent on agriculture.

The government of Malawi (GoM) enacted the Control of Goods Act (COGA) in 1968. The COGA was intended to protect indigenous enterprises and the nascent industry as a way of making them more competitive. Since early 2000, GoM has used this act to impose trade restrictions, in particular, export bans, to control trade flows for maize, soy, and other crops. The stated objectives for most of these bans were to ensure national food security and to protect domestic agro-industry, such as vegetable oil processors (Edelman and Baluch, 2016). However, most of these policy changes and their implementation have been opaque and idiosyncratic. Various studies in Malawi and elsewhere, have found that arbitrary and unpredictable licensing restrictions or bans are likely to harm trade, and are detrimental to the commercialization of agriculture. A recent World Bank Systematic Country Diagnostic (SCD) report notes that Malawi’s maize policies have had a distortionary effect on maize markets, potentially leading to higher volatility and lower private investments (World Bank, 2018). Within the southern African region, there is also the possibility that these arbitrary restrictions lead to the escalation of informal and illegal cross-border trade due to imperfect enforcement of trade controls. In 2018, the Malawian parliament passed the Control of Goods Bill (2018) with an attempt towards creating a more predictable trade environment with transparency in the regulation of agricultural trade and production.

While the Control of Goods Bill may be a step in the right direction, the maize markets in Malawi are not only influenced by Malawi’s trade policies, but also by policies in the neighboring countries, particularly given the existence of informal trade channels across Malawi and its neighbors. Analyzing the effects of maize export bans, therefore, needs to consider the policy regimes at the regional level. Amongst Malawi’s neighbors, both Tanzania and Zambia have had a long history of imposing export bans (Porteus, 2017). Mozambique, on the other hand, has had a relatively liberal maize economy since instituting market reforms during the 1990s (Tostao and Brorsen, 2005). No systematic information on the imposition and lifting of export bans across Malawi, Tanzania, and Zambia exists. In the absence of official data, we compile a timeline on the export policy regimes since the early 2000s using information from previous studies, media reports, and periodic outlook reports from the Famine and Early Warning System Network (FEWS NET). Table 1 presents the start and end dates for the observed export bans in these three countries. Overall, for our sample period from 2002 to 2017, we observe 16 export ban periods, with an average ban duration of 16 months.

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