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Economic Transformation in Africa from the Bottom Up: Evidence from Tanzania

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  • Xinshen Diao
  • Josaphat Kweka
  • Margaret McMillan

Abstract

At roughly 4% per annum, labor productivity in Tanzania has grown more rapidly over the past 12 years than at any other time in recent history. Employment growth has also been strong keeping up with population growth at roughly 2.5 percent per annum; the bulk of employment growth (90%) has been in the non-agricultural sector. However, the vast majority of this non-agricultural employment growth has occurred in the informal sector. Using Tanzania’s first nationally representative survey of micro, small and medium sized enterprises - we show that firms in the informal sector contributed roughly half a percentage point to economy-wide labor productivity growth in Tanzania between 2002 and 2012. However, virtually all of the labor productivity growth contributed by informal firms came from a small subset of firms we call the in-between firms. We consider attributes of the in-between firms that could be used for targeting financial and business services to firms with the potential to grow. We find two salient characteristics of firms in the in-between sector that might lend themselves to targeting – their owners are more likely to keep written accounts and they are more likely to keep their savings in formal bank accounts.

Suggested Citation

  • Xinshen Diao & Josaphat Kweka & Margaret McMillan, 2016. "Economic Transformation in Africa from the Bottom Up: Evidence from Tanzania," NBER Working Papers 22889, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:22889
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    Cited by:

    1. Wilfred E. Mbowe & Fredrick R. Shirima & Deogratius Kimolo, 2020. "Role of Financial Innovation in Enhancing MSMES Access to Credit: An Empirical Investigation on Tanzania," Applied Economics and Finance, Redfame publishing, vol. 7(3), pages 126-144, May.
    2. Abhijit Banerjee & Emily Breza & Esther Duflo & Cynthia Kinnan, 2019. "Can Microfinance Unlock a Poverty Trap for Some Entrepreneurs?," NBER Working Papers 26346, National Bureau of Economic Research, Inc.
    3. Benson, Todd & Randriamamonjy, Josee & Fang, Peixun & Nyange, David & Thurlow, James & Diao, Xinshen, 2017. "Prospects for the Sectoral Transformation of the Rural Economy in Tanzania: A Review of the Evidence," Feed the Future Innovation Lab for Food Security Policy Research Papers 270634, Michigan State University, Department of Agricultural, Food, and Resource Economics, Feed the Future Innovation Lab for Food Security (FSP).

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    More about this item

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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