Understanding institutional barriers to economic growth in Tanzania

A major new report from researchers at the Economic Development & Institutions (EDI) research programme, provides policymakers in Tanzania with a new and comprehensive analysis to aid in the development of effective institutional reforms to support inclusive, sustainable economic growth. It also represents the first stage in the development of a country institutional diagnostic toolkit which can be applied for enriching the understanding of the relationship between institutions and economic development.

It is widely agreed that institutions are a major determinant of economic performance and a key factor in understanding differences in growth and prosperity across and within countries. But despite increasing awareness of the importance of institutions on economic outcomes, there is little evidence on how positive institutional change can be achieved. EDI was established in 2015 with funding from DFID in order to address the knowledge gaps around institutions and their impacts on economic growth.

Tanzania Institutional Diagnostic

EDI researchers have now completed the first comprehensive study that aims to generate a new approach to understanding how to overcome barriers to institutional change and improving people’s lives. The Tanzania Institutional Diagnostic is a new publication based on a systematic and holistic study into the institutional environment of Tanzania and how it operates. The research reveals a 'chain of causality' between five basic areas of institutional weakness in Tanzania and their 'proximate causes', such as lack of administrative capacity or misaligned incentives, which are themselves the result of “deep factors”, such as political, social or ideological power structures. The extensive analysis leads to the recommendation of two key principles that should be established to guide the development of policies and reforms most able to foster positive institutional change.

Francois Bourguignon, lead investigator for the research, said: “As a diagnostic tool, this report attempts to go beyond identifying the symptoms of institutional weakness to uncover the causes behind them and possible remedies for positive change. It’s important because a new conceptual framework is emerging that will be of real, practical use to policymakers trying to identify strategies for reform.”

Most identified instances of institutional challenges in the way the Tanzanian economy functions turn out to result from a small number of fundamental governance deficiencies. The report provides reflection on ways to remedy such challenges while taking duly into account the political economy context, including the structure of political power. The report authors outline two key recommendations, or principles, to guide the way to approach reform of the legal and administrative apparatus in Tanzania:

• allow for more competition and market mechanisms within the economy and the way it is managed; and
• ensure continuous rigorous and transparent evaluation of the functioning of the public sector at all administrative levels.

While these principles are consistent with general recommendations for approaches to economic growth, the diagnostic explains how they are related (through a causality chain) to other institutional weaknesses in Tanzania, thereby bringing deeper insights into the processes of institutional change. It is hoped that these reflections and conclusions will be of some help for conducting policy in Tanzania, and bringing about the institutional reforms required for inclusive, sustainable and prosperous growth to the country.

A version of this post originally appeared on the EDI website.