The Second Economy in Tanzania

The Second Economy in Tanzania

The Second Economy in Tanzania

The Second Economy in Tanzania


Every country has its second, underground, unofficial, irregular or parallel economy. By their nature they are hidden and defy accurate and formal measurement. They provoke conceptual and definitional arguments among analysts. There has recently been a surge of interest; anecdote, newspaper reports and educated guesses have increasingly been replaced by serious analysis. However, most of the new generation of studies are of developed economies.

This book examines the effect on a developing economy. It explores the causes, identifies the key sectoral manifestations and reveals the various groups of actors. It attempts to establish the size of the second economy of Tanzania.

Various factors drove the official economy into distress. Tanzanian peasants, wage earners and firms resorted to legitimate and illegitimate activities to overcome state control and shortage of basic necessities.

This pioneering study will be invaluable for policy makers, international funding bodies and for students who are faced with trying to understand the realities of life behind the formal facade of economic theory and official statistics."


Chapter 2 attempted to measure the importance of the second economy focusing mainly on its relative size in relation to the official economy. In this chapter we shall try to establish the various manifestations of the second economy in three important sectors of the economy -- in agriculture, industry, and in the internal and external trade sectors. The objective is to establish not the relative sectoral magnitudes of the second economy, but the various forms in which the second economy may reveal itself. Once these forms have been identified it is then possible for policy makers to design specific policies directed at correcting the particular imbalance or distortion.

The previous chapter has already identified two macro-level manifestations of the second economy -- namely, discrepancies between income and expenditures, and evidence visible in monetary aggregates. To these we shall add three other forms: (i) evidence in the form of discrepancies between what is produced, consumed, and officially marketed; (ii) evidence in the form of a discrepancy between official prices or exchange rates and unofficial prices or exchange rates, and (iii) evidence revealed by differences in official and unofficial marketing channels. Our analysis will have to take into consideration the behaviour and decisions made by producers, buyers and sellers in the whole economy -- that is, in the private official sector, the public sector and the second economy.

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