Risk, Risk Management And Vulnerability To Poverty In Rural Malawi

Author: Donald Makoka

Year: 2008

Category: Dissertations

Abstract

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.

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