An Empirical Investigation of the Role of Manufacturing and Economic Growth: The Case Study of Tanzania

Abstract

This study examines the effect of manufacturing sector in the economic growth of
Tanzania, using annual time series data from 1985 to 2017. The study employed
the Ordinary Least Square technique whereby Kaldor’s first law was triangulated
with exogenous theory to examine the role of manufacturing in the economic
growth of Tanzania. Augmented Dickey-Fuller (ADF) test was used to test for
stationarity. The variables regressed included economic growth, manufacturing
growth, exports and employment growth. Granger Causality test revealed that
there was unidirectional relationship running from economic growth to
manufacturing growth contrary to what was hypothesised. In general, the findings
were not in favour of the applicability of the Kaldor’s first law in Tanzania
because causality was running from economic growth to manufacturing growth
instead of running from manufacturing to economic growth. This implies that the
economy of Tanzania is driven by other sectors apart from manufacturing. It is
thus observed that more efforts to improve and sustain manufacturing growth
would make manufacturing the engine of economic growth. Intuitively, from the
policy point of view the findings entails that in order to make manufacturing sector
the engine of economic growth, enabling conditions to propel growth of the
economy, necessary factors like capital availability, technological advancement,
availability of skilled labour and promotion of export led manufacturing growth
is necessary.