Figures Figure 1. Augmented Solow Model: Actual and Predicted Real GDP per capita (In percent)

1 An earlier version of was presented at the Weatherhead Center Workshop on Explaining African Economic Growth, 1960-2000, Harvard University, March 17–19, 2005. We are very grateful for comments and suggestions from this workshop and also for advice from Bob Bates, Paul Collier and Steve O’Connell. The views expressed in this chapter are those of the authors and do not necessarily reflect the views of the IMF or World Bank, or the policies of these institutions.

2 nmwase@imf.org, bndulu@worldbank.org.

3 Tanzania is currently the third largest producer of gold in Africa.

4 The average income growth rate per capita during the period 1961 to 1970 is lower at 3.0 percent on account of bouts of negative growth rate following independence and in the initial years of the Arusha Declaration reflecting uncertainties of foreign private investors.

5 The government noted that Tanzania was forced to import even basic manufacturing goods while her neighbors, Kenya and Uganda, consolidated their manufacturing base.

6 The World Bank, for example, doubled its lending programme to Tanzania between 1973 and 1977 as Tanzania’s development strategy was consistent with the policy of redistribution and growth spearheaded by Rober McNamara, then President of the World Bank.

7 The factor shares are based on the assumption that factors are paid their marginal value. Collins and Bosworth (2003) note that the higher capital share values reported in developing countries was partly a result of incorrect estimates of self employed income in national accounts data.

8 The capital stock series is taken from Nehru and Dhaervasal (1993).

9 The returns to education are based on mincerian coefficients. H = (1 + φ)^s where H is human capital, φ is returns to education and s is average years of schooling. Though microeconomic studies suggest that the return to education is highest in SSA at 0.13, evidence from macroeconomic studies shows lower returns. Hence, Collins and Bosworth (1996, 2003) generated human capital under the assumption on 7 percent return to scale.

10 Lag of GDP per capita is used as a proxy.

11 See Hoeffler (2000).

12 As is conventional, it is based on the assumption that the rates of technological progress and capital depreciation are constant across countries and sum to 0.05. Therefore, the replacement requirements variable is the sum of population growth augmented by 0.05.

13 For a detailed discussion of the augmented Solow model see Hoeffler (2000).

14 Barro and Lee 1993; Easterly 1996; Elbadawi and Ndulu 1996; Sachs and Warner 1997

15 The insignificance of the human capital variable in macroeconomic models has been attributed to poor measurement of the years of schooling and decreases in quality of education over time.

16 In the model the quality of policy environment is defined independent of the changes in the global development paradigm, which to a large extent influenced the quantity of aid a country received. As Ndulu (2005) for example shows, Tanzania’s CPIA rating was relatively high during the 1970s consistent with the ruling global development paradigm, which emphasized equity and universal access to basic needs.

17 These member-based cooperatives were established prior to independence in order to market cotton and coffee and protect producers’ profit margins. However, over time, their control had increased with one in particular having a monopoly over all the handing of rice, sisal and maize (McLoughlin, 1967).

18 This was part of idea of Ujamaa village spelt out in the “Socialism and Rural Development”, a document which explained the process of implementing the policy of socialism (McHenry 1994).

19 However, maize sales at the local market through private channels were allowed.

20 Since food crop production was predominantly for the domestic market, the government utilized pricing policy extensively during the 1970s with the aim of achieving desired production and consumption.

21 Smuggling was rampant with only farmers in remote Southern Highlands selling their surplus maize through official channels.

22 Dar-es-salaam, the major city formerly the capital city, was not one of the identified cities.

23 More than half of the 400 public sector entities identified for privatization in 1993 had been divested by 1999.

24 UNCTAD Press (2004).

25 The education policy, particular secondary level, was designed to provide a broad cultural experience with students sent to study in different regions laying a foundation to a united nation.

26 Brownbridge and Gayi (2000)

27 These costs are lower than in Uganda, partly because of the higher transportation costs resulting from its landlocked geographic position.

28 Ndulu 2003 and 2004 develops this argument in greater detail.

29 Hyden (1978) refers to the exit options taken by “uncaptured peasant”.

30 The Helleiner process was an initiative of the Danish government in agreement with the Tanzanian authorities to evaluate Tanzania-donor relations during 1994. It was led by Professor Jerry Helleiner of the University of Toronto and a team of independent advisers on development cooperation issues including Tanzanians, Professors Benno Ndulu and Nguyuru Lipumba (Muganda 2004).

31 The government-led Tanzania Assistance Strategy (TAS) provides a framework for partnership and helps delineate the role of external resources for development as stated in the Vision 2025. It encompasses the National Poverty Eradication Strategy (NRPS) and the Poverty Reduction Strategy Paper (PRSP).

32 Adam et al. (1994)

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