Effects of industrialization on Tanzania’s economic growth: a case of manufacturing sector

Abstract This article examines the impact of industrialization on economic growth in Tanzania focusing on the drivers of structural changes in the manufacturing sector. We apply the vector error correction model based on a parsimonious model covering the period from 1970 to 2017. Our results demonstrate the existence of a positive relationship between the manufacturing sector through its value added and economic growth in Tanzania. We have also observed a similar pattern of relationship in other sectors of the economy such as construction, agriculture, and services. Furthermore, the interaction model shows that foreign direct investment inflows and net domestic credit are the drivers of manufacturing growth. However, the real exchange rate coefficient is negative and significant, suggesting that it has had a negative impact on manufacturing output. The results are consistent with postulations of economic models found in economic growth theories. The article also presents some policy implications regarding the need for consistent policy implementation in the manufacturing sector and further improvement of the investment climate