Working Paper: NBER ID: w22889
Authors: Xinshen Diao; Josaphat Kweka; Margaret McMillan
Abstract: At roughly 4% per annum, labor productivity in Tanzania has grown more rapidly over the past 12 years than at any other time in recent history. Employment growth has also been strong keeping up with population growth at roughly 2.5 percent per annum; the bulk of employment growth (90%) has been in the non-agricultural sector. However, the vast majority of this non-agricultural employment growth has occurred in the informal sector. Using Tanzania’s first nationally representative survey of micro, small and medium sized enterprises - we show that firms in the informal sector contributed roughly half a percentage point to economy-wide labor productivity growth in Tanzania between 2002 and 2012. However, virtually all of the labor productivity growth contributed by informal firms came from a small subset of firms we call the in-between firms. We consider attributes of the in-between firms that could be used for targeting financial and business services to firms with the potential to grow. We find two salient characteristics of firms in the in-between sector that might lend themselves to targeting – their owners are more likely to keep written accounts and they are more likely to keep their savings in formal bank accounts.
Keywords: Economic transformation; Labor productivity; Informal sector; Tanzania
JEL Codes: O4; O55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| informal firms (J46) | labor productivity growth (O49) |
| in-between firms (L14) | labor productivity growth (O49) |
| keeping written accounts (M41) | labor productivity (J24) |
| saving in formal bank accounts (D14) | labor productivity (J24) |
| decline in agricultural employment (J43) | labor productivity growth (O49) |
| increase in non-agricultural employment (J68) | labor productivity growth (O49) |