Searching For Binding Constraints of Economic Growth: Tanzania Case Study
Pohjola, Tuuli (2015)
2015
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The objective of this master’s thesis is to find constraints that are binding sustainable economic development in Tanzania by using the Growth Diagnostics approach, developed by Ricardo Hausmann, Dani Rodrik and Andrés Velasco. According to the authors, the whole list of economic constraints is unknowable ex-ante and the set of problems varies by countries, therefore the main focus should be specified elimination of the foremost distortions. Growth Diagnostics provides helps to prioritise policies in the developing countries where reform capital is scarce, thus, the framework provides a tool for sustained economic growth in Tanzania.
I begin with a review of Tanzania’s economic background, starting from the independence. Tanzania’s transformation from a socialist to a market based economy has created challenges in the country’s economic past. Altogether, Tanzania’s growth performance has been fluctuating and the economy remains as one of the world’s poorest. However, Tanzania has been growing steadily over the past decade and now that the country has faced some credible growth rates, the question is how to stabilize and sustain the further development.
Based on the GD exercise in the empirical part of the study, Tanzania has challenges in almost all of its sectors, but I find three major constraints of sustained economic growth in Tanzania; poor financial intermediation, insufficient supply of electricity and corruption. Prioritizing reform capital to these distortions is likely to provide the most significant positive impact on growth and further development of Tanzania.
I begin with a review of Tanzania’s economic background, starting from the independence. Tanzania’s transformation from a socialist to a market based economy has created challenges in the country’s economic past. Altogether, Tanzania’s growth performance has been fluctuating and the economy remains as one of the world’s poorest. However, Tanzania has been growing steadily over the past decade and now that the country has faced some credible growth rates, the question is how to stabilize and sustain the further development.
Based on the GD exercise in the empirical part of the study, Tanzania has challenges in almost all of its sectors, but I find three major constraints of sustained economic growth in Tanzania; poor financial intermediation, insufficient supply of electricity and corruption. Prioritizing reform capital to these distortions is likely to provide the most significant positive impact on growth and further development of Tanzania.