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Small Enterprise Growth and the Rural Investment Climate: Evidence from Tanzania

  • Kinda, Tidiane
  • Loening, Josef

This paper analyzes characteristics of nonfarm enterprises, their employment growth patterns, and constraints in doing business in rural Tanzania. Using unique survey data, the we describe a low-return sector struggling to compete in a challenging business environment. However, about one-third of rural enterprises are growing fast. Most enterprises engage in agricultural trade. Due to a rapidly growing agricultural sector in recent years, limiting demand-side constraints, rural enterprise constraints in Tanzania mainly operate from the supply side, suggesting that in particular access to finance, road infrastructure, and rural cell phone communication is associated with employment growth. A major finding is that subjective and objective measurements of business constraints are broadly comparable. We discuss a number of factors that would help to unleash the full potential of private sector-led growth in rural areas. Marginal improvements in the rural investment climate matter for growth.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 25894.

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Date of creation: 08 Mar 2010
Date of revision:
Publication status: Published in African Development Review 22.1(2010): pp. 173-207
Handle: RePEc:pra:mprapa:25894
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  1. Bigsten, Arne & Soderbom, Mans, 2005. "What have we learned from a decade of manufacturing enterprise surveys in Africa ?," Policy Research Working Paper Series 3798, The World Bank.
  2. Mead, Donald C. & Liedholm, Carl, 1998. "The dynamics of micro and small enterprises in developing countries," World Development, Elsevier, vol. 26(1), pages 61-74, January.
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  4. Barrett, C. B. & Reardon, T. & Webb, P., 2001. "Nonfarm income diversification and household livelihood strategies in rural Africa: concepts, dynamics, and policy implications," Food Policy, Elsevier, vol. 26(4), pages 315-331, August.
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  6. Sleuwaegen, Leo & Goedhuys, Micheline, 2002. "Growth of firms in developing countries, evidence from Cote d'Ivoire," Journal of Development Economics, Elsevier, vol. 68(1), pages 117-135, June.
  7. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  8. Pablo Fajnzylber & William Maloney & Gabriel Montes Rojas, 2006. "Microenterprise Dynamics in Developing Countries: How Similar are They to Those in the Industrialized World? Evidence from Mexico," World Bank Economic Review, World Bank Group, vol. 20(3), pages 389-419.
  9. McPherson, Michael A., 1996. "Growth of micro and small enterprises in southern Africa," Journal of Development Economics, Elsevier, vol. 48(2), pages 253-277, March.
  10. Jin, Songqing & Deininger, Klaus W. & Sur, Mona, 2005. "Sri Lanka's Rural Non-farm Economy: Removing Constraints to Pro-poor Growth," 2005 Annual meeting, July 24-27, Providence, RI 19280, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  11. Evans, David S, 1987. "Tests of Alternative Theories of Firm Growth," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 657-74, August.
  12. Loening, Josef & Rijkers, Bob & Soderbom, Mans, 2008. "Nonfarm microenterprise performance and the investment climate : evidence from rural Ethiopia," Policy Research Working Paper Series 4577, The World Bank.
  13. Dollar, David & Hallward-Driemeier, Mary & Mengistae, Taye, 2005. "Investment Climate and Firm Performance in Developing Economies," Economic Development and Cultural Change, University of Chicago Press, vol. 54(1), pages 1-31, October.
  14. Ellis, Frank & Mdoe, Ntengua, 2003. "Livelihoods and Rural Poverty Reduction in Tanzania," World Development, Elsevier, vol. 31(8), pages 1367-1384, August.
  15. Fisman, Raymond & Svensson, Jakob, 2000. "Are corruption and taxation really harmful to growth? - firm-level evidence," Policy Research Working Paper Series 2485, The World Bank.
  16. Lanjouw, Peter & Quizon, Jaime & Sparrow, Robert, 2001. "Non-agricultural earnings in peri-urban areas of Tanzania: evidence from household survey data," Food Policy, Elsevier, vol. 26(4), pages 385-403, August.
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