Growth, Inequality, and Simulated Poverty Paths for Tanzania, 1992–2002

Abstract

Although Tanzania experienced relatively rapid growth in per capita GDP in the 1995–2001 period, household budget survey (HBS) data show only a modest and statistically insignificant decline in poverty between 1992 and 2001. To assess the likely trajectory of poverty rates over the course of the period, changes in poverty are simulated using unit-record HBS data and national accounts growth rates under varying assumptions for growth rates and inequality changes. To this end the projection approach of Datt and Walker (2002) is used along with an extension that is better suited to taking into account distributional changesobserved between the two household surveys. The simulations suggest that following increases in poverty during the economic slowdown of the early 1990s, recent growth in Tanzania has brought a decline in poverty, particularly in urban areas. Unless recent growth is sustained, the country will not meet its 2015 Millennium Development Goal (MDG). Poverty reduction is on track in urban areas, but reaching the MDG target for bringing down poverty in rural areas, where most Tanzanians live, requires sustaining high growth in rural output per capita.