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If you could start a country from scratch, what would it be like?Would the world be a better or worse place if everyone looked the…

If you could start a country from scratch, what would it be like?Would the world be a better or worse place if everyone looked the same?What causes the most harm in the world, but is completely avoidable?What should the role of a government be, what boundaries and limitations should it have?

Sample Solution

Over the past few years Tanzania government has been struggling to solve the mismatch or disconnection between economic growth and poverty reduction. National Bureau of Statistics (NBS) of Tanzania provides annual GDP growth rate averaged 6.72% from 2002 until 2015, highest being 12.40% in the third quarter of 2007 and a lowest record of 2.60% in 2009. The growth on the GDP is an indication that the national cake is increasing hence the expectation of the citizens in Tanzania is that poverty will reduce by having equal distribution of the national cake. Tanzania’s Human Development Index increased from 0.445 to 0.530 from the period of 2005 to 2010. Distribution of the national income cake is reported uneven since most of the improvements in the poverty indicators occurred in Dar es Salaam region. Poverty in Dar es Salaam declined by over 70% but in the rural areas only by 15%, this uneven spatial decline of poverty is related to the pattern of economic growth, which is almost entirely cantered in Dar es Salaam region, where there is the most expanding and growing sectors. Poverty has become more responsive to growth; the poverty headcount appears to have declined just as economic growth has continued to expand since 2007. In December 2014, Tanzania released revised gross domestic product (GDP) figures with a base year of 2007. GDP growth averaged 6.3 percent from 2008 to 2013, with a marked increase in volatility compared to the previous series of numbers. The new figures suggest a stronger impact of economic growth on poverty reduction than previously observed. The magnitude of the poverty reduction response to economic growth, however, depends on how economic growth is defined. When growth is measured by changes in GDP per capita, the growth elasticity of poverty is ‘1.02 during 2007’2011/12’in other words, a 10-percentage increase in GDP growth per capita can be expected to produce a 10.2 percentage decrease in the proportion of the poor. When economic growth is defined using changes in mean household consumption calculated from HBS, however, the growth elasticity of poverty is ‘4.0 during the same period, indicating an increase in household consumption. Inequality is also increasing between urban and rural areas as well as between city centre and other regions. Household consumption grew faster in the metropolitan and urban zones than in rural areas, inducing an increase of inequality between geographic regions. In Tanzania, income inequality can also be explained by family background, that is family background seems to have a greater influence on the disparity of living standards than the characteristics of the local community, such as access to basic services and infrastructure, connection to markets and population centres. This indicates significant problems of intergenerational poverty and inequality persistence. Addressing the influence of parental education and background on children’s opportunities is a long-term mission that is often complex. But without additional policy actions, there are limited chances for the generations disadvantaged by circumstances to spring out of the poverty and inequality also endured by their parents. Tanzania shows moderate levels of inequality in 2012. With the Gini coefficient estimated at less than 40, inequality in Tanzania is moderately high by international standards but lower than Sub-Saharan average inequality. GINI COEFFICIENT IN SUB SAHARAN AFRICA The Gini coefficient of real per capita monthly consumption indicates that the level of inequality for Tanzania is approximately 36, below the SSA average of 45.1 and the low income countries average of 40.13 Among East African countries, Tanzania’s Gini coefficient is below that of Burundi, Kenya, Uganda, and Rwanda and is only slightly higher than Ethiopia. It is on par with levels of inequality in South and East Asia, which range around 38.4, and significantly lower when compared to parts of South America, such as Mexico, Bolivia, and Brazil, where levels of inequality range from 47 to 55. Inequality in Tanzania shows a slightly decreasing trend over time. The Gini coefficient decreased from 38.5 to 35.84 between 2007 and 2012 (see Table 2.1). The HBS and NPS datasets show slightly different levels and trends for inequality. This is possibly due to differences in measurement methods of consumption expenditures between the two datasets. The first uses the diary method and the second a seven-days-recall method for collection of food consumption data. Also, NPS data do not collect information on clothing expenditures, and there have been no changes in the survey design similar to those introduced in HBS. But although the inequality estimates from NPS did not confirm the declining trend of inequality, it still provides evidence of moderate and fairly stable inequality at a level below 40-as estimated by Gini index. Dar es Salaam and secondary cities display more uneven distributions of consumption than rural areas. The Gini coefficients are respectively of 36, 38, and 30 for the capital city, rest of urban, and rural areas in 2011/12. The distribution of consumption is equalizing over time in all the regions, with the most substantial improvement occurring in the rural areas, Much of the reduction in inequality seems to be driven by an increase in the welfare share accruing to the poorest segment of the population, as the consumption share of the poorest quintile grew by more than 16 percent between 2007 and 2011/12 and by over 20 percent during the past five years, except in the secondary cities, where it grew by only 11 percent over the past decade (bottom part of Table 2.1). Even though part of the increase in the share of consumption going to the bottom quintile can be attributed to improvements in the survey design, the adjusted inequality estimates using the reweighting procedure, as well as the small area estimation techniques, reveals also positive changes over the past decade in the consumption shares of the lowest quintile groups. 1.2 Overview of Tanzania economy Tanzania has a total population of 47.4 million as recorded in census 2014. It is one of the world’s poorest economies in terms of per capita income but the country achieved high growth rates due to gold production and tourism. The economy depends on agriculture that consists of more than one quarter of the GDP of the country. Tanzania has been receiving funds from World Bank, IMF and other donors to support Tanzania’s aging economic infrastructures. Recent banks reforms have helped increase private sector growth and investment also the government has increased spending on agriculture to 7% of its budget; however the financial sector in Tanzania has expanded in recent years that are having foreign owned banks for about 48% of the banking industry’s total assets. Emergency of foreign banks in the country has resulted to significant improvements in the efficiency and quality of financial services. A positive growth rate in Tanzania has been contributed by continued donor assistance and solid macroeconomic policies. Also high gold prices and increased production also led to growth of Gross Domestic Product (GDP). Growth in GDP in 2009-2013 was a respectable 6-7% per year. Over the past few years the national strategy for growth and reduction of poverty (MKUKUTA) in Tanzania has given high priority to eradicating extreme poverty and promoting broad-based growth. Achieving pro-poor growth has also been widely recognized by the World Bank as a critical strategy for accelerating progress toward its twin goals of eliminating extreme poverty at the global level by 2030 and boosting shared prosperity by fostering income growth among the bottom 40 percent in every country. This national strategy of poverty reduction reported positive results in 2013, which shows that there is decrease in poverty. In early 2000s, Tanzania’s economic growth was seen to have strong resilience to external shocks. In 2007, the poverty rate in Tanzania remained stagnant around 34% despite of the robust growth at 7%. In 2007, HBS revealed that the percentage age of Tanzania citizens living below the basic needs poverty line has slightly fallen from 35.7% in 2001 to 33.3% in 2007 this shows a decrease of 2.4%, this is the case for the urban area while in rural areas there is a decrease of only 1.3% on the people living below the basic needs poverty line. This implies that the statistics shows the growth has not manifested itself into poverty reduction in Tanzania. A quarter of Tanzanian adults have no formal education, and 29 percent can neither read nor write. In rural areas, 30 percent of the population has no education. A significant rise has taken place in the proportion of households headed by a woman, and women are about twice as likely as men to have no education. Rural women are particularly disadvantaged; 41 percent are unable to read or write. Poverty levels are strongly related to the education of the head of household (Tanzania 2002a). Life expectancy is 44 years and falling (UNDP 2003), largely due to HIV/AIDS, leaving an orphan population estimated at more than 1.1 million (with 50,000’60,000 new orphans each year). HIV/AIDS has had and will continue to have a detrimental effect on Tanzania’s health, economy, and environment. Famine resulting from floods or droughts is not uncommon. Since the mid-1990s, adverse weather conditions have undermined food security. Social well-being, however, is good in Tanzania, a country with a long history of participatory planning and implementation of public programs. Aside from some instability in the late 1960s and early 1970s, Tanzania has enjoyed peace, stability, and unity since independence. 1.3 Statement of the Problem Over the last 10 years, Tanzania’s economic growth has been fairly impressive. However, the growth does not seem to have translated into income inequality reduction. While the GDP grew at an average rate of 7.1 percent per year from 2000 to 2007, income inequality remained stagnant with little or negligible decrease as well as poverty, as measured by the head count index, barely declined during this time. Even more puzzling, while the poverty has remained constant and growth has been impressive, income inequality has also remained constant. One would expect that if the cake is increasing but the share of the cake to the poor remains constant, then the share of the rich would have gone up, and thus increasing inequality. But the Tanzanian cake seems to have increased, the poor remained with the same share of the care and surprisingly; the data suggests that inequality did not increase either. This puzzle needs to be explained if insight is to be gained on how the existing data can inform policy for pro-poor growth. It is also instructive to note that over this period, from 2000 to 2007, the Tanzania’s Human Development Index increased from 0.445 to 0.530, overtaking some few countries in the Sub-Saharan Africa. Since development has to be evaluated in terms of its multidimensional extent, it is significant that while income poverty seems to have remained stagnant from 2000 to 2007, a more multidimensional evaluation records some progress in Tanzania, albeit a modest one. Still, the big question remains: why is it that evidence largely suggests that growth has not been pro-poor in Tanzania? This is a pertinent question because MKUKUTA seeks to promote broad-based growth, and poverty reduction remains an overriding policy objective. Specifically the following questions are pertinent in reviewing pro-poor growth strategy for Tanzania Why economic growth does not seem to be translated into poverty reduction? How come the impressive growth from 2000 to 2014 did not lead to the reduction in the poverty nor did it lead to an increase in income inequality? What policy would generate pro-poor growth in Tanzania?>

Over the past few years Tanzania government has been struggling to solve the mismatch or disconnection between economic growth and poverty reduction. National Bureau of Statistics (NBS) of Tanzania provides annual GDP growth rate averaged 6.72% from 2002 until 2015, highest being 12.40% in the third quarter of 2007 and a lowest record of 2.60% in 2009. The growth on the GDP is an indication that the national cake is increasing hence the expectation of the citizens in Tanzania is that poverty will reduce by having equal distribution of the national cake. Tanzania’s Human Development Index increased from 0.445 to 0.530 from the period of 2005 to 2010. Distribution of the national income cake is reported uneven since most of the improvements in the poverty indicators occurred in Dar es Salaam region. Poverty in Dar es Salaam declined by over 70% but in the rural areas only by 15%, this uneven spatial decline of poverty is related to the pattern of economic growth, which is almost entirely cantered in Dar es Salaam region, where there is the most expanding and growing sectors. Poverty has become more responsive to growth; the poverty headcount appears to have declined just as economic growth has continued to expand since 2007. In December 2014, Tanzania released revised gross domestic product (GDP) figures with a base year of 2007. GDP growth averaged 6.3 percent from 2008 to 2013, with a marked increase in volatility compared to the previous series of numbers. The new figures suggest a stronger impact of economic growth on poverty reduction than previously observed. The magnitude of the poverty reduction response to economic growth, however, depends on how economic growth is defined. When growth is measured by changes in GDP per capita, the growth elasticity of poverty is ‘1.02 during 2007’2011/12’in other words, a 10-percentage increase in GDP growth per capita can be expected to produce a 10.2 percentage decrease in the proportion of the poor. When economic growth is defined using changes in mean household consumption calculated from HBS, however, the growth elasticity of poverty is ‘4.0 during the same period, indicating an increase in household consumption. Inequality is also increasing between urban and rural areas as well as between city centre and other regions. Household consumption grew faster in the metropolitan and urban zones than in rural areas, inducing an increase of inequality between geographic regions. In Tanzania, income inequality can also be explained by family background, that is family background seems to have a greater influence on the disparity of living standards than the characteristics of the local community, such as access to basic services and infrastructure, connection to markets and population centres. This indicates significant problems of intergenerational poverty and inequality persistence. Addressing the influence of parental education and background on children’s opportunities is a long-term mission that is often complex. But without additional policy actions, there are limited chances for the generations disadvantaged by circumstances to spring out of the poverty and inequality also endured by their parents. Tanzania shows moderate levels of inequality in 2012. With the Gini coefficient estimated at less than 40, inequality in Tanzania is moderately high by international standards but lower than Sub-Saharan average inequality. GINI COEFFICIENT IN SUB SAHARAN AFRICA The Gini coefficient of real per capita monthly consumption indicates that the level of inequality for Tanzania is approximately 36, below the SSA average of 45.1 and the low income countries average of 40.13 Among East African countries, Tanzania’s Gini coefficient is below that of Burundi, Kenya, Uganda, and Rwanda and is only slightly higher than Ethiopia. It is on par with levels of inequality in South and East Asia, which range around 38.4, and significantly lower when compared to parts of South America, such as Mexico, Bolivia, and Brazil, where levels of inequality range from 47 to 55. Inequality in Tanzania shows a slightly decreasing trend over time. The Gini coefficient decreased from 38.5 to 35.84 between 2007 and 2012 (see Table 2.1). The HBS and NPS datasets show slightly different levels and trends for inequality. This is possibly due to differences in measurement methods of consumption expenditures between the two datasets. The first uses the diary method and the second a seven-days-recall method for collection of food consumption data. Also, NPS data do not collect information on clothing expenditures, and there have been no changes in the survey design similar to those introduced in HBS. But although the inequality estimates from NPS did not confirm the declining trend of inequality, it still provides evidence of moderate and fairly stable inequality at a level below 40-as estimated by Gini index. Dar es Salaam and secondary cities display more uneven distributions of consumption than rural areas. The Gini coefficients are respectively of 36, 38, and 30 for the capital city, rest of urban, and rural areas in 2011/12. The distribution of consumption is equalizing over time in all the regions, with the most substantial improvement occurring in the rural areas, Much of the reduction in inequality seems to be driven by an increase in the welfare share accruing to the poorest segment of the population, as the consumption share of the poorest quintile grew by more than 16 percent between 2007 and 2011/12 and by over 20 percent during the past five years, except in the secondary cities, where it grew by only 11 percent over the past decade (bottom part of Table 2.1). Even though part of the increase in the share of consumption going to the bottom quintile can be attributed to improvements in the survey design, the adjusted inequality estimates using the reweighting procedure, as well as the small area estimation techniques, reveals also positive changes over the past decade in the consumption shares of the lowest quintile groups. 1.2 Overview of Tanzania economy Tanzania has a total population of 47.4 million as recorded in census 2014. It is one of the world’s poorest economies in terms of per capita income but the country achieved high growth rates due to gold production and tourism. The economy depends on agriculture that consists of more than one quarter of the GDP of the country. Tanzania has been receiving funds from World Bank, IMF and other donors to support Tanzania’s aging economic infrastructures. Recent banks reforms have helped increase private sector growth and investment also the government has increased spending on agriculture to 7% of its budget; however the financial sector in Tanzania has expanded in recent years that are having foreign owned banks for about 48% of the banking industry’s total assets. Emergency of foreign banks in the country has resulted to significant improvements in the efficiency and quality of financial services. A positive growth rate in Tanzania has been contributed by continued donor assistance and solid macroeconomic policies. Also high gold prices and increased production also led to growth of Gross Domestic Product (GDP). Growth in GDP in 2009-2013 was a respectable 6-7% per year. Over the past few years the national strategy for growth and reduction of poverty (MKUKUTA) in Tanzania has given high priority to eradicating extreme poverty and promoting broad-based growth. Achieving pro-poor growth has also been widely recognized by the World Bank as a critical strategy for accelerating progress toward its twin goals of eliminating extreme poverty at the global level by 2030 and boosting shared prosperity by fostering income growth among the bottom 40 percent in every country. This national strategy of poverty reduction reported positive results in 2013, which shows that there is decrease in poverty. In early 2000s, Tanzania’s economic growth was seen to have strong resilience to external shocks. In 2007, the poverty rate in Tanzania remained stagnant around 34% despite of the robust growth at 7%. In 2007, HBS revealed that the percentage age of Tanzania citizens living below the basic needs poverty line has slightly fallen from 35.7% in 2001 to 33.3% in 2007 this shows a decrease of 2.4%, this is the case for the urban area while in rural areas there is a decrease of only 1.3% on the people living below the basic needs poverty line. This implies that the statistics shows the growth has not manifested itself into poverty reduction in Tanzania. A quarter of Tanzanian adults have no formal education, and 29 percent can neither read nor write. In rural areas, 30 percent of the population has no education. A significant rise has taken place in the proportion of households headed by a woman, and women are about twice as likely as men to have no education. Rural women are particularly disadvantaged; 41 percent are unable to read or write. Poverty levels are strongly related to the education of the head of household (Tanzania 2002a). Life expectancy is 44 years and falling (UNDP 2003), largely due to HIV/AIDS, leaving an orphan population estimated at more than 1.1 million (with 50,000’60,000 new orphans each year). HIV/AIDS has had and will continue to have a detrimental effect on Tanzania’s health, economy, and environment. Famine resulting from floods or droughts is not uncommon. Since the mid-1990s, adverse weather conditions have undermined food security. Social well-being, however, is good in Tanzania, a country with a long history of participatory planning and implementation of public programs. Aside from some instability in the late 1960s and early 1970s, Tanzania has enjoyed peace, stability, and unity since independence. 1.3 Statement of the Problem Over the last 10 years, Tanzania’s economic growth has been fairly impressive. However, the growth does not seem to have translated into income inequality reduction. While the GDP grew at an average rate of 7.1 percent per year from 2000 to 2007, income inequality remained stagnant with little or negligible decrease as well as poverty, as measured by the head count index, barely declined during this time. Even more puzzling, while the poverty has remained constant and growth has been impressive, income inequality has also remained constant. One would expect that if the cake is increasing but the share of the cake to the poor remains constant, then the share of the rich would have gone up, and thus increasing inequality. But the Tanzanian cake seems to have increased, the poor remained with the same share of the care and surprisingly; the data suggests that inequality did not increase either. This puzzle needs to be explained if insight is to be gained on how the existing data can inform policy for pro-poor growth. It is also instructive to note that over this period, from 2000 to 2007, the Tanzania’s Human Development Index increased from 0.445 to 0.530, overtaking some few countries in the Sub-Saharan Africa. Since development has to be evaluated in terms of its multidimensional extent, it is significant that while income poverty seems to have remained stagnant from 2000 to 2007, a more multidimensional evaluation records some progress in Tanzania, albeit a modest one. Still, the big question remains: why is it that evidence largely suggests that growth has not been pro-poor in Tanzania? This is a pertinent question because MKUKUTA seeks to promote broad-based growth, and poverty reduction remains an overriding policy objective. Specifically the following questions are pertinent in reviewing pro-poor growth strategy for Tanzania Why economic growth does not seem to be translated into poverty reduction? How come the impressive growth from 2000 to 2014 did not lead to the reduction in the poverty nor did it lead to an increase in income inequality? What policy would generate pro-poor growth in Tanzania?>
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