An empirical analysis of poverty, inequality and the labour market in Malawi

Author(s): Servaas van der Berg , Anderson Gondwe (PhD Candidate)

DCom Thesis

Candidate: Anderson Gondwe
Supervisor: Professor Servaas van der Berg
Institution: Stellenbosch University, Faculty of Economic and Management Sciences, Department of Economics

Abstract

This thesis is a consolidation of three related studies on Malawi. The first study contains spatial and temporal comparisons of poverty and inequality in Malawi using two non-monetary dimensions, namely an asset index and child nutritional status. Through stochastic dominance tests, the study establishes that poverty and inequality are unambiguously higher in rural areas, which contain 85% of the population, in the Southern region and among households headed by females. Results indicate that poverty has significantly declined over time and that the gains from growth have been pro-poor. We show that welfare does not vary much across regions and areas with respect to child nutritional status but there are large differences in asset poverty. Stunting is a bigger problem among children under the age of five than body wasting and being underweight. Econometric analysis shows that asset ownership is positively associated with household size, the age of household head and education attainment. Age dependency ratio and incidence of sickness are negatively associated with asset ownership. Multivariate analysis of child nutrition reveals that malnutrition first worsens before improving at some critical age. This is consistent with possible recovery found in some of the studies that track children over time. Also in accordance with some literature, we find that boys have weaker nutritional status than girls. The second study looks at the role of education in poverty reduction identified through the labour market. This study contributes to research on returns to education by including self-employment activities and non-farm business enterprises. Unlike previous studies, this study uses panel data which has many advantages, as acknowledged in the literature. We find large and positive returns to education in Malawi suggesting that education is a good investment. The returns increase with the levels of education. Interestingly, females have higher returns to education than males with similar skills. Since the Malawian labour market is not homogeneous, our analysis distinguishes between the formal and informal employment sectors. Furthermore, studying Malawi’s informal sector is important as it accounts for 78% of total employment. Our results show that education externalities exist and play an important role in non-farm enterprises. The findings are robust to sample selection and treatment of outliers. We further show that dealing with inconsistencies in the data helps improves the quality and reliability of the results. The third study applies spatial panel data econometric techniques to the study of migration and employment in Malawi. The study shows that the magnitudes of coefficients drop after taking into account spatial dependencies. This confirms that studies that fail to take into account the spatial effects tend to overstate the results. By matching geographical codes that are consistent over time, it is now feasible to integrate census data with other data for similar spatial analysis. The study further evaluates the impact of land reform policy on spatial migration and employment using a difference-in-difference estimation strategy. Results show that the policy has had significant effects on migration and employment patterns in Malawi.

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