Industrialization and resource allocation in a developing country: The case of recent experiences in Tanzania

This paper examines the problem of allocation of resources in the industrial sector in Tanzania during the balance-of-payments crises since the mid-1970s. It is argued that the slow growth of industrial output in the 1970s was aggravated by the failure to shift the utilization of foreign exchange away from capital goods imports for capacity expansion in favour of intermediate inputs for capacity utilization. Consequently society benefited only moderately from considerable new investments of the 1970s. This aspect of misallocation of resources is explained in terms of the role of foreign finance on the one hand and the weak link between macro-level and micro-level planning on the other.