RURAL – URBAN WELFARE INEQUALITIES IN MALAWI: EVIDENCE FROM A DECOMPOSITION

Abstract

In this study usage is made of the Integrated Household Survey of 2004-2005 data to examine welfare inequalities between rural and urban areas in Malawi. Consumption expenditure per adult equivalent (lnC) is the welfare indicator. Firstly, the study estimates linear welfare regressions and performs decompositions at the mean using the Oaxaca-Blinder (1973) Method. The results obtained indicate that a greater percentage of the welfare gap is attributable to differences in characteristics rather than discrimination. Secondly, the method of quantile regression decomposition as proposed by Machado Mata (2005) is applied to analyze the difference between the rural and urban distribution of lnC. The findings indicate that across the entire distribution, the welfare gap is primarily due to differences in characteristics between rural and urban sectors rather than differences in returns to those characteristics. Policy indications emerging from the study suggest that consistent actions in providing education and employment opportunities would reduce inequality in Malawi. Such initiatives coupled with enhanced labour market flexibility and investment in rural infrastructure would address the twin problem of poverty and inequality.