The main objective of this chapter was to review the main theories and methods of measuring of poverty as they have evolved over time. Three main theories of poverty have been discussed, namely the Social Darwinian, the culture of poverty and the structural theory. It has been illustrated that the first two theories put the blame on either an individual or on society. On the other hand the structural theory blames the existence of poverty and inequality on the structure of global capitalism.
A number of poverty measurements have been discussed in this chapter including the income approach, the capability approach and the Human Development Index. One outstanding point that has emerged from the discussion of these measurements is that poverty is a very complex phenomenon. Therefore, its measurement and interpretation need to be done with a lot of care. This point was underscored by the 1998 World Bank study which revealed that although the domain of poverty indicators is largely the same, different countries have different views about poverty.
Despite the existence of various methods of computing poverty, this chapter has zeroed in on the calibration of the poverty line using the utility function approach. Under this approach, the poverty line can be interpreted as a point on the consumer‟s expenditure function, giving the minimum cost to a household of attaining a given level of utility at the prevailing prices and for a given household characteristics. The relationship of food and non-food expenditures in determining a general poverty line has been extensively discussed. One reason for focusing on this methodology is that in the case of Malawi, officially, poverty is still largely measured based on income approach. Lastly, it has been illustrated
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that poverty in Malawi is unevenly distributed within its three regions. The southern region has the highest number of both poor and ultra poor people followed by the north and then finally the centre. Further decomposition of poverty for different socioeconomic groups is pursued later in the thesis.
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CHAPTER THREE
THE IMPACT OF TOBACCO POLICY REFORMS ON
PRICES AND INCOME INEQUALITY IN MALAWI
3.0 Introduction
Since 1981 Malawi has implemented a series of Enhanced Structural Adjustment Facilities (ESAF) supported by the IMF and World Bank, particularly in the agricultural sector. Most of these agricultural policy reforms have been carried out in the tobacco industry for two main reasons. Firstly, tobacco is the main cash crop with no major close substitutes so policy makers felt that positive reforms in this industry would have far-reaching economic benefits. Secondly, prior to the reforms, the tobacco industry had growing, marketing and pricing policies that strongly discriminated against smallholders. Reviewing such restrictive policies was therefore regarded as the best way to ensure that smallholders became active participants and beneficiaries of the socio-economic growth and development of the country.
The reforms were designed with three main objectives, namely to allow market forces to drive allocation in crop production, promote competition and ensure that smallholder farmers get good producer (tobacco) prices. The last two objectives were regarded as central because it was observed, particularly by the donor community, that nearly fifteen years after independence the majority of smallholders remained poor and that the income gap between the rich estate owners and the poor smallholder farmers had greatly increased. Competition and favourable producer prices were therefore viewed as an effective route to reducing absolute and relative poverty, especially amongst smallholder tobacco growers.
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While Malawi‟s agricultural policy reforms in general, and the tobacco policy reforms in particular, have triggered great attention amongst researchers, the impact of these reforms on producer prices and income inequality has not been adequately examined. By extension, this means that the welfare effects of the tobacco policy reforms on smallholders are still not well informed. The main objective of this chapter is to examine whether the policy reforms in the tobacco industry have indeed helped to improve the prices that smallholder farmers get. In addition, it tests the impact of these reforms on income inequality between smallholders and estate owners. To achieve this, three key questions are raised as follows: (1) Have the tobacco policy reforms led to an improvement in the absolute prices that smallholders get? (2) How do the prices that smallholders receive compare with what the estate owners get? (3) What is the impact of these reforms on income inequality between smallholder and estate tobacco growers?
To address the first question, an analysis of structural changes is conducted. The analysis is achieved by employing two tests, namely the cumulative sum–based (CUSUM) and moving estimates-based (ME) empirical fluctuation process (efp). Later, the Poe (convolutions) test and the Kolmogorov-Smirnov (KS) test are performed in order to tackle the second question. Finally, the Gini index and the general entropy measures are used to test for income inequality between the above indicated socioeconomic groups involved in growing of tobacco. Prior to these tests, a review of the tobacco crop production, marketing and pricing policies is carried out. In the final analysis, a discussion on other related issues including economic diversification away from tobacco and promotion of fair trading is included. This is done with the aim of shedding more light on other relevant issues that may require attention if improvement of the smallholders‟
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