Risk, Risk Management and Vulnerability to Poverty in Rural Malawi
Vulnerability to poverty in Malawi is highly associated with risk. Rural households face multiple shocks, most of which threaten their livelihoods and impact negatively on their welfare. This study investigates three inherently interconnected issues: vulnerability to poverty; risk management strategies; and consumption smoothing. The central research issue is on understanding the role of risk in household vulnerability and poverty. Using a two-period panel dataset of 259 households in rural Malawi, the study addresses three objectives: First, to identify the determinants of vulnerability in rural Malawi. Second, to analyze households’ coping mechanisms for different shocks and identify the determinants of these mechanisms. Third, to test for the existence of household consumption smoothing as an insurance mechanism against idiosyncratic shocks.
The panel dataset used in the study was derived from the 2004 second Malawi Integrated Household Survey (IHS2) from which 259 households were sampled and followed up in 2006 with a similar questionnaire. Vulnerability was modelled as expected poverty using Christiaensen and Subbarao (2004) methodology to investigate the extent to which rural households in Malawi are vulnerable to poverty. The results show that in 2004 the sampled households had an average chance of 44 percent of falling into poverty in 2006 and around 21 percent of the non-poor in 2004 were vulnerable to poverty in 2006. Further, female-headed households appear to be more vulnerable than their male counterparts. Education, land holdings and running a non-farm income generating activity in the household reduce household vulnerability. Community infrastructures such as health clinics and access to markets have vulnerability-reducing effects. These correlates of vulnerability are extremely similar to the correlates of poverty among the sampled households. Both covariate and idiosyncratic shocks are felt more by the vulnerable households. The results further show that vulnerability among the studied households is exacerbated by low average consumption levels more than consumption volatility.
The determinants of risk management strategies were analyzed using a multinomial logistic regression model. The results have shown that drought, rising food prices and illness are among the major shocks that the sampled households face, with crop diversification being used as an ex-ante risk management strategy. Ex-post coping strategies take the form of safety net programs, use of household assets and getting support from social networks, among others. The major determinants of the choice of the ex-post coping strategy among the studied households include the size of the household, the number of economically active individuals in the household, per capita landholdings, ownership of livestock, access to markets and the type of shocks that households face.
Consumption smoothing was analyzed using a household asset index due to unavailability of household income data. A test for consumption smoothing was then run by considering the impact of changes in the household asset index between 2004 and 2006 on changes in consumption. The results, which are robust to measurement error in consumption expenditure, show that the studied households try to protect their consumption from shocks, with food consumption being protected more than non-food consumption. Further, poor households tend to protect their food consumption more than the non-poor households. However, the study found no evidence of perfect consumption smoothing.
The major policy implications are that poverty reduction programmes would be more effective in rural Malawi if they do not only incorporate the currently poor but also the vulnerable. Since the study has shown that the main source of vulnerability appears to be low mean consumption levels among the studied households, social protection programmes that take the form of productivity-enhancing safety nets, targeting not only the poor but also the vulnerable would be effective to help them cope with shocks and increase household mean consumption levels. Programmes that help rural households to accumulate assets are also needed to help them cope with shocks. Further, promotion of small and medium scale irrigation schemes as well as the use of weather insurance, as a means of reducing the costs associated with crop failure, could be effective in dealing with the major covariate shock, drought.
||ZEF B: Department of Economic and Technological Change
||The World Bank,
Poverty Reduction and Economic Management,
1818H Street NW,
Washington, DC 20433,
- Growth, inequality and poverty
||Risk, Risk Management and Vulnerability to Poverty at Household Level in Malawi
||PhD (Economics), 2008, University of Hannover, GERMANY
Master of Arts (Economics), 2003, University of Malawi, MALAWI
Bachelor of Social Science (Economics), 2000, University of Malawi, MALAWI
||1. Consultant (Economist), World Bank, Poverty Reduction and Economic Management AFTP1, Washington, DC. USA (current)
2. Research Fellow, Centre for Agricultural Research and Development, University of Malawi; (2004-present)
3. Lecturer in Economics, Bunda College of Agriculture, University of Malawi; (2004-present)
4. Research Economist, International Crops Research Institute for the Semi-Arid Tropics (ICRISAT-Malawi) (2003-2004)
|Financially supported by
||BMZ via DAAD & GTZ
Risk, Risk Management and Vulnerbility to Poverty in Rural Malawi.
Makoka, D., B. Kaluwa and P. Kambewa.
The Demand for Private Health Insurance in Malawi.
University of Malawi, Department of economics, Working Paper,
Download [PDF | 252 KB]
Makoka, D., P. Kambewa and B. Kambewa.
Demand for Private Health Insurance where Public Health Services are Free: The Case of Malawi.
Journal of Applied Science 7(21): 3268-3273, 2007,
Download [PDF | 407 KB]
The Emergence of Supermarkets in Malawi: Implications for Agrifood Markets and the Small Farmer.
Takane, T. (eds.):
Agricultural and Rural Development in Malawi: Macro and Micro Perspectives, A.R. Series No.11/2005.
Download [PDF | 145 KB]