Trade Complementarities Between Europe and Tanzania

Abstract

We study the changes in comparative advantage over time of Tanzanian exports and identify opportunities for trade with Europe. Comparative advantage is measured using the Balassa index (and the Volrath index as a robustness check). Additionally, trends in intra-industry trade (both between Tanzania and the world as well as with sub-Saharan Africa) are measured using the Grubel–Loyd Index. All products studied are under Harmonized System (HS) 2-digit classification and from 2009 to 2018, inclusive. Tanzania’s exports still rely heavily on raw materials such as those in groups of stone and glass, animals and vegetables. However, from 2012 onward Tanzania has gained an export advantage in intermediate goods. These intermediate exports are highly correlated with exports of textiles and clothing as well as processed vegetables. Tanzania has an opportunity to export processed fish and animal products to Europe. In addition, we find import opportunities in rubber and plastic, transportation, chemical and woods. Most of these products can be used in the production process, hence a trade agreement will lower the cost of production for local industries. Trade between Tanzania and the rest of the world is found to be inter-industry as opposed to intra-industry except for textile products. Sectors with export potential are processing of animal products, textile and leather industries.

The authors are thankful to Peter van Bergeijk and Binyam Afewerk Demena of Erasmus University, International Institute of Social Studies for technical guidance in carrying out the research work. The study was financially supported by Research on Poverty Alleviation (REPOA), the African Caribbean and Pacific Group of States (ACP Group) of this project, grant number FED/2019/408-112.