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

In the pursuit of structural transformation and inclusive growth, this paper identifies industries in Tanzania which can accumulate new productive knowledge and diversify the economy. The analysis has two main components. First, a Product Space analysis identifies niches primarily within the manufacturing sector, which Tanzania should promote in order to move up the complexity scale and stimulate structural change. The identification process applies a supply-side network method following the literature on Economic Complexity and combines it with a demand-driven gravity model on merchandise export. Hence, we identify industries that are tangible given Tanzania’s current productive knowledge and are most feasible for Tanzania to target given product-specific trade resistance and geographically dispersed demand. Second, as generating jobs for the rapidly growing labour force is a prime political priority in Tanzania, we construct a labour opportunity index in order to display which industries are correlated with a high labour intensity. We find that there is a larger scope for learning spillovers in the relatively more complex sectors, such as machinery and chemicals, whereas the less complex sectors, such as agro-processing and construction, are correlated with higher employment creation. The paper is, to the best of our knowledge, the first comprehensive study of economic complexity and structural change in Tanzania that systematically accounts for both supply and demand-side factors.