Economic Growth, Income Distribution and Agricultural Policy in Malawi

Malawi's weak economic performance during the 1980s occurred in part due to the failure to reform agricultural pricing policies. An econometric model shows that the continuation of high levels of taxation on smallholder exports slowed the growth of the economy and hurt the poor. While a policy of adhering to border prices is therefore commended, the model also shows that raising minimum wages in the absence of productivity gains will erode the benefits of price liberalization. Furthermore, price policy reforms need to be accompanied by broader institutional reforms, particularly those aimed at breaking down the imposed market segmentation between estates producers and smallholders.