Economic Transformation in Tanzania: Vicious or Virtuous Circle?

This paper evaluates the concept of economic transformation and further investigates its relevance in the present day policy debates in Tanzania. The paper starts by taking a critical look at a homemade definition of economic transformation. A brief literature review of the concept of economic transformation is presented and its relation to growth by making a distinction between successful and failed transformations. More specifically, it argues that historical experiences show that there is not a unique process of transformation, but rather a variety of contrastive pathways depending on whether or not they lead to the cumulative convergence or divergence of productivities across the different sectors of the economy. A simple framework is employed in this paper to show the arithmetic of the decomposition of the growth of GDP, of the labour force and of labour productivity across productive sectors of the economy. This framework is then used to show that processes of growth can differ markedly between sectors of the economy depending on the extent to which the growth in production is driven by productivity growth or by the growth in employment, or some combination of both. It is argued, in particular, that there is a possibility for an economy to be characterised by the co-existence of diverging growth dynamics between different sectors (or sub-sectors) of the economy. Specifically, parts of agriculture and of the informal economy – come to act as sponges to absorb surplus labour, while other sectors are characterised by jobless growth, thus leading to processes of cumulative divergence rather than convergence between productivities across sectors.