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Income Distributional Effects of Economic Adjustment in Tanzania

Author: Timothy Sigsmund Nyoni
Year: 1992
Abstract: There is evidence from several studies that the Tanzanian economy has been worsening since the late 1970s. Production, real per capita, private consumption, wages and incomes have been fluctuating and declining. The balance of payments has also been in crisis as shown by, among others, the negative trade and current accounts balances. The economy crisis the country is facing requires an empirical study which would analyze the workings of the economy and suggest how the performance of it can be improved. The objective of this study was to examine the impact of the economic adjustment policies on the performance of the economy and household per capita incomes. This study is based on rural and urban household survey conducted in 1990. The rural survey was done in four regions: Dodoma, Iringa, Kilimanjaro and Ruvuma. The urban survey was done in Dar-Es-Salaam. The sample size was 799 rural households and 287 urban households. The study was carried out using household survey incomes, domestic relative prices, a computable general equilibrium (CGE) model as well as tracing trends in various economic variables. While the other methodologies indicate a relatively stronger relationship between macroeconomic policies and welfare, results from the application of the CGE model of Tanzania indicate weak welfare gains from trade liberalization. The findings of this study showed that with more liberal economic and trade policies, there has a been a general tendency for real per capita incomes and consumption to increase in the late 1980s. The distribution of household incomes is, however, far from equitable. The inequality ratio for urban Tanzania in 1989/90 was 0.04 while for the rural households was 0.20. There were, however, changes in the structure of household incomes. With more liberal economic policies, there has been a shift away from subsistence into cash income generating activities. Subsistence incomes have been constituting a declining share of total household incomes while more of the incomes are being derived from farm cash and own business activities. The general conclusion for Tanzania is that there are potential benefits from liberal trade and the general economic policies. Hence, the policy of economic liberalization the country is currently pursuing should be encouraged and promulgated. Thus, given the potential for welfare gains from liberal economic policies, the government of Tanzania should continue and sustain the drive for a more liberal, market oriented economy.
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