What Drives Productivity in Tanzanian Manufacturing Firms: Technology or Institutions?

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Micheline Goedhuys, UNU-MERIT

Using the rich micro data set of the World Bank Investment Climate
Survey, this paper examines the determinants of productivity among
manufacturing firms in the context of a least developed country,
Tanzania. In particular it seeks to evaluate the importance of
technological variables - such as R&D, education and training,
innovation, foreign ownership, licensing and ISO certification - and
institutional variables – such as access to credit, health of the
workforce, regulation and business support services. Among the
technological variables, R&D, and innovations in the form of new
products or processes fail to produce any significant impact, and only
foreign ownership, ISO certification and high education of the
management appear to affect productivity. Some of the institutional
variables on the contrary are highly significant and robust to different
specifications of the model. As such, formal credit constraints,
administrative burdens related to regulations and a lack of business
support services seem to depress productivity, while membership of a
business association produces the opposite effect. The results of a
quantile regression further indicate that the educational level of the
managers and access to formal credit are significant for the less
productive firms only, whereas for the more productive firms it is
having an ISO certification or being a member of a business association
that are the significant determinants.

Date: 28 November 2006