The Impact of the East African Community (EAC) Customs Union on Tanzanian Industrial Growth, 2020.

Abstract

Tanzania strives to improve its industrial sector through liberalization, while maintaining its non- tariff barriers, due to the internal challenges currently facing the industrial sector. Consequently, this study aims to provide evidence of industrial growth in Tanzania after the signing of the East African Community (EAC) customs union. To accomplish this, industrial growth was measured in terms of exports to the world and to the EAC using two Revealed Comparative Advantage (RCA) indices which include Balasa’s index and Volrath’s index. Using the 3 digit SITC classification system of commodities for exports and imports for the years of 1995 through 2012, the study examined the RCA trend in manufacturing and agro-processing industries. The findings illustrate the number of products in which Tanzania has an RCA increased. The results also suggest that Tanzania is losing an RCA in some commodities with the EAC. Classifying the goods by Ricardian, Heckscher-Ohlin (H-O) and Product Cycle (PC), based on industrial development, it was revealed that, Tanzania has been able to gain an RCA in 5 more PC goods, in addition to the 3 PC goods they had already gained an RCA in before 2005. Overall, Tanzanian trade liberalization created competition and led to growth in the industrial sector, albeit at a slow pace. Therefore, we recommend that the government implement effective trade policies to solve the primary challenges facing the sector, instead of imposing import barriers.