Merchandise export diversification strategy for Tanzania: Promoting inclusive growth, economic complexity and structural change

Abstract

This paper identifies industries in Tanzania that are critical for (i) upgrading and diversifying the economy, (ii) increasing export revenue and (iii) absorbing labour. First, a Product Space analysis identifies industrial niches, which Tanzania should promote to increase economic complexity and stimulate structural transformation. The identification of industries is based on a supply-side network method following the literature on economic complexity. Second, we combine the complexity analysis with a gravity model, identifying industries with high, demand-driven export potential. In combination, the supply-and-demand framework finds industries that are complex, feasible to target given Tanzania's existing know-how and profitable to export given product-specific trade resistance and geographically dispersed demand. Third, we construct an employment absorption index to identify industries with a high labour intensity. Our findings suggest a high export potential and scope for learning spillovers in complex sectors, such as machinery and chemicals. In contrast, less complex sectors, such as agro-processing, metal and wood, are correlated with higher employment creation.