Analysis of Agriculture versus Industry-led Development And their Impacts on Growth and Poverty in Tanzania

Abstract

The government has created several economic plans and institutions to boost agriculture so that it can play its rightful role as the engine of national economic growth. The sector unexpectedly failed to deliver because the attempts did not solve adequately the fundamental problems besetting the sector, namely backward technology and poor management of the set-up institutions. Given the poor performance of agriculture in the past, can it still play a leading role in economic growth once policy makers address the fundamental problems it faces now? The purpose of this paper is to examine empirically the potentialities of the sector in economic development. The paper adopts a Social Accounting Matrix framework to check whether the traditional key role of agriculture in economic development is still relevant. The evaluation of the ascendancy of agriculture over industry relies on the contribution of demand shocks on different sectors to economic growth, alleviation of poverty and equity in Tanzania. Evidence shows that financial support directed at promoting the agricultural sector and agriculture-based processing activities relative to other activities induces the highest economic growth in Tanzania. It also raises the incomes of unskilled agricultural workers, and particularly unskilled female labour. The rural and urban poor families also gain more from the modernisation of the agricultural sector. The results of the analysis lead us to believe that agricultural development strategy yields better-targeted outcomes than industrialization-centred development. Export promotion of agricultural products leads relatively to higher economic growth, greater poverty alleviation, and better equity than emphasis on industrialisation.