Village Level Labor Market Development in Tanzania: Evidence from Spatial Econometrics

While many empirical studies show that participation in rural labor markets is an important household livelihood strategy, data on Tanzania show that the participation in the rural labor markets is still relatively low. This study examines the factors behind the development of village labor markets in Tanzania. Using spatial econometric techniques, the study shows that, despite their incipient development, rural labor markets in Tanzania are significantly interlinked across space. Furthermore, underlying factors for development of rural labor markets, such as access to roads and availability of credit, have varying impacts across space. This implies that policy interventions such as making credit available to the rural households and investment in rural transport infrastructure would also have varying effects across space. The study reveals that interventions that reduce cash constraints such as rural credit schemes are likely to have greater impacts in the western part of the country than in the eastern part. However, interventions that reduce the time used in collecting firewood are likely to have more pronounced impacts in the eastern parts than in the western parts of the country. While east-west variations of most of these interventions are significant, most of the north-south variations are not significant. This phenomenon is partly attributed to east-west alignment of key infrastructure such as transport networks.