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Transportation costs, food markets, and structural transformation in Tanzania
The growing wealth of nations has, throughout history, been associated the movement of people off the land, out of subsistence agriculture and into more dynamic forms of economic activity. What is striking in Tanzania, and in other low-income countries in Africa, is the absence of any significant structural transformation, despite a fairly impressive macroeconomic performance over the last 20 years. The overwhelming majority of the population still lives in rural areas and works in agriculture, predominantly depending for their livelihoods on farming small plots of land, where they primarily produce food for home consumption. Productivity in the agricultural sector remains generally very low and is an important factor in explaining Tanzania’s limited success in poverty reduction since 2003, despite high aggregate growth.
This project examines how high transportation costs – affecting both domestic and international trade – influence the current structure of the Tanzanian economy and contribute to Tanzania’s slow transformation from an agrarian to an industrial and service-oriented economy. We develop a calibrated model of spatial production and consumption to examine how public-policy interventions, such as investment in the rural road network or in exposing domestic transport and distribution activities to greater competition, impact on the spatial and sectoral structure of production in the economy. This work is funded by the IGC's Macroeconomic Research Programme