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.