Vol. 4, Issue 4, Part E (2018)

Abstract
This study examined effects of real exchange rate on Economic growth of Malawi. Time series annual data for the period of 1980-2014 was used, whereby trends on Real exchange rate, Inflation, Real interest rate, and Real gross domestic product were obtained from Reserve Bank of Malawi, Terms of trade openness and Private investment from Malawi Ministry of Industry and Trade, finally Human capital trends from International monetary fund. Dickey–fuller unit root test and Johansen test for co-integration was conducted, whereby data was stationary after first differencing and co-integrated of order1.The VECM was employed and used OLS technique in analysis of regression models. Results showed that real exchange rate was significant and negatively correlated with Economic Growth. The study recommends among other things, the monetary authorities and Malawian Government to formulate sound macroeconomic policies that are capable of restoring the economy on track with stable rates that promote growth.