Trade Policy and Transport Costs in Tanzania

Abstract

Recent studies on trade policy for low-income countries have established that high transport costs associated with poor quality infrastructure in countries such as Tanzania represent a barrier to trade and an additional source of protection to domestic producers of import competing goods. Using the analytical framework applied by Milner et al (2000) to Uganda, this study reports results for Tanzania on transport costs as a barrier to trade. The estimates are used to identify sectors most vulnerable to transport costs. The results shows that although substantive trade policy reforms have succeeded in lowering average tariff levels and associated protection, transport costs increase the level of protection for almost all sectors; notably Beverages and Tobacco, cash crops, manufactured foods and building materials. In addition, decomposition of disprotection (taxation) effects on exports shows that measures to reduce transport cost burdens on exporters are essential to improve export performance for Tanzania. Simulation of the protection effects under the new EAC Customs Union shows that overall the level of tariff protection may increase but any adverse impacts could be offset by greater efficiency at Customs and ports and additional investment to reduce infrastructure-related transport costs.Effective Protection, Transport Costs, Trade, Tanzania