The dynamics of income inequality in a dualistic economy: Malawi from 1990 to 2011

This paper aims to document and explain the evolution of inequality in Malawi over recent decades using data from various national and international sources. Inequality rose between 1968 and the late 1980s due to the agricultural export-led development model adopted by the Banda regime, which favoured the estate sector and medium-sized farms and thereby created a ‘dualism within the dualism’ that exacerbated the inequality inherited from the colonial era. Between the early 1990s and the mid-2000s, inequality declined, in part owing to the adoption of the Starter Pack programme which covered all smallholders and substantially strengthened maize production per capita, including among the poorest farmers. Finally, inequality rose again between 2004 and 2011. Applying a microdecomposition analysis, this paper shows that a key driver of the rise in inequality during this period was the suboptimal structural transition of the economy from a low-inequality crop agriculture to high-inequality sectors such as livestock production, commerce, transport and formal and informal services located in both urban and rural areas. Such suboptimal structural transition was in part due to the decline of manufacturing induced by the trade liberalization of the 1990s and the skewed distribution of the rise in incomes from livestock production.