Export instability and economic development in Tanzania

Abstract

Problem: Tanzania is a dependent underdeveloped country which relies primarily on the export of primary commodities to finance her development programmes, with no direct foreign investment, while other forms of foreign inflow loans and grants are also limited. Can such a state of affairs lead to a self-generating and self-sustaining growth? This is a difficult question, the answer to which requires a broad study covering all aspects of the national economy. As a subset of this broad problem, we chose the effects export instability may have on the economic development of the country. Most studies on export instability and economic development utilize cross-country data in cross-sectional analyses to determine the effects of instability on the economic development of the underdeveloped countries. Such studies, however, do not take into account the specific conditions of each of the underdeveloped countries included in the study--cultural differences, differences in factor endowments and socio-political conditions--and as such cannot be reliably used to explain the effects of instability in such countries. Methods Used in Obtaining Data: Part of the data were obtained by the author from the Central Statistical Bureau--Dar-es-Salaam, Tanzania, which made available the returns of questionnaires sent out to various government ministries, parasternal organizations and several individuals who conduct business related to foreign trade. The rest of the data were government published statistics and data from international organization gathered through library research. Main Results and Conclusions: Previous studies, which concluded that export instability does not have deleterious effects on the economic development of the underdeveloped countries, have been refuted in this study at least in so far as they refer to Tanzania. Using time series data from 1954-1973, it was established that a significant negative relationship existed between export instability and economic development, especially as it relates to capital formation, inflation, unemployment, government revenue and expenditure, and peasant incomes. Export instability was found to be higher in Tanzania than had been found to be for a group of underdeveloped countries. On a commodity-by-commodity basis, instability was even higher for some of the most important export crops than the aggregate for export earnings. Though some measures have been devised to deal with the instability problem, some of them are not without some drawbacks. National stabilization measures, though helpful in ameliorating the internal impact of external shocks, cannot change the level of export earnings because such levels are determined by forces outside the national economy. International Commodity Agreements, and especially the International Coffee Agreement, have not achieved their objectives. Economic integration in East Africa has been hampered by economic and political differences between the neighboring states and by external forces that exploit such differences to further their own courses. Reliance on the export of primary commodities has further been dampened by the fact that the marginal propensity for the advanced countries to import raw materials has been declining and is likely to decline still further. The reason being that, either the raw materials are produced ln the advanced countries themselves and/or that there has been a sharp decline in the raw material content of the advanced countries' manufactures. For Tanzania, a raw material producing country, a whole new development strategy is required. What is required is a thorough ~study of the domestic resource potential and then, initiation of an industrial programe based on domestic resources to satisfy domestic needs, where exports become an extension of the domestic market and at the same time make a concerted effort at self-sufficiency in food production