The Impact of Economic Recovery Programme on the Manufacturing Sector in Tanzania:an Empirical Analysis

Abstract

The objective of this paper was to explore and estimate the effects of the Economic Recovery Programme (ERP) on the Manufacturing sector in relation to exports, productivity changes and-export diversification. The study was motivated by a lack of systematic analysis of the impact of trade and macroeconomic Policies on the manufacturing sector since the introduction of the ERP. This study is important both in terms of validation of theoretical models often used in such studies, and in terms of guiding the choice of a policy mix consistent with economic institutions and realities in Tanzania. Econometric and comparative analysis technique, were used to analyze the impact of ERP. Two equations in which real exports and real exchange rate enter as dependent variables were developed. The real exchange rate was introduced as a variable in the export supply equation, so as to capture the effects of both trade and macroeconomic policies as well as other policies designed to promote exports. The equations were estimated using Ordinary Least Squares, using time series data for the period 1966 1992. The relative impact on exports performance was estimated utilizing the estimates of supply responsiveness to the real exchange rate. The signs and statistical significance of the estimated coefficients of the econometric analysis, strongly support the model empirically. Nevertheless, the comparative analysis results showed that in the short run the ERP policies boosted export performance whereas in the long-run supportive policies are required for sustainable export growth. Hence the study confirms The conclusions that for a sustainable export growth and steady improvement of the manufacturing sector structural reform policies are required in addition to trade and macroeconomic .policies. The comparative analysis exercise, also showed that the macroeconomic and trade policies adopted by the ERP were subt optimal and that they were inconsistent with the development of Tanzania's manufacturing sector.