MZUMBE UNIVERSITY

FACULTY OF SOCIAL SCIENCE

PROGRAMME: BSC.ECO P&D II
SUBJECT NAME: ECONOMETRIC II
SUBJECT CODE: ECO 222
LECTURER: DR. E. MKUNA
SUBMISSION DATE: 12TH MAY 2023

GROUP ASSIGNMNET
S/N NAMES REGISTRATION NO.
1 SAJIRA NYAMGENDA 13317049/T.21
2 RAHABU WILLIAM 13317052/T.21
3 SHARIFA YAHAYA 13317013/T.21
4 ANTONIA KISINDA 13317016/T.21
5 WILLIAM WANDWI 13317025/T.21
6 PENDO SAMSON 13317028/T.21
7 NGASA MGANGA 13317042/T.21
8 EVANS LIWA 13317026/T.21
9 NUHU MWAKALINGA 13317008/T.21
10 MONICA MWECHIBINDU 13317054/T.21
11 JAPHET MANYIKA 13317010/T.21
12 ERASTO DODO 13317030/T.21
THE ROLE OF GOVERNMENT POLICY IN SMALL BUSINESS GROWTH
IN MOROGORO, TANZANIA.

A CASE OF MZUMBE WARD IN MOROGORO, TANZANIA

By,

Group no 1.
 1. INTRODUCTION

This chapter entails what has made the researcher to conduct this research and it will
include back ground information, statement of the problem, objectives (general and
specific), research questions, significance of the study, and scope of the study.

1.1 Background

Morogoro is a major commercial center located in the eastern part of Tanzania. It is

known for its vibrant small business community, with a diverse range of enterprises
ranging from retail shops, restaurants, and small manufacturing businesses. Small
businesses in Morogoro face numerous challenges, including limited access to
financing, inadequate infrastructure, limited business training and development, and
unfavorable government policies.

Despite the challenges faced by small businesses in Morogoro, they play a critical role
in the local economy. Small businesses contribute significantly to employment
creation, income generation, and poverty reduction. According to the Tanzania
National Bureau of Statistics (NBS), the small business sector employs over 80% of
the country's workforce and accounts for 35% of the country's Gross Domestic
Product (GDP).

The government of Tanzania has implemented various policies to support small

businesses in the country. For instance, the government launched the Small Industries
Development Organization (SIDO) in 1973 to provide support to small businesses in
the country. Additionally, the government has implemented various tax incentives,
business development programs, and infrastructure development projects aimed at
facilitating small business growth.

1.2 Statement of the problem

Despite the critical role played by small businesses in the economic development of
Morogoro and Tanzania, they face numerous challenges that hinder their growth and
sustainability. The government of Tanzania has implemented various policies to
support small businesses, including tax incentives, access to financing, business
training and development, and infrastructure development. However, the impact of
these policies on small business growth in Morogoro is not well understood.
There is a limited understanding of the policies implemented by the government to
support small businesses in Morogoro, and their effectiveness in facilitating small
business growth. Access to financing remains a significant challenge faced by small
businesses in Morogoro, and there is limited information on the government's efforts
to increase access to financing for small businesses. Additionally, infrastructure
development and business training and development opportunities for small
businesses in Morogoro remain inadequate.

Moreover, some government policies may be unfavorable for small businesses,

hindering their growth and sustainability. There is a need to identify these policies and
evaluate their impact on small business growth in Morogoro.

Thus, the problem statement of this research is to evaluate the role of government
policy in small business growth in Morogoro, Tanzania, by identifying the policies
that have been implemented and evaluating their effectiveness in facilitating small
business growth. The research aims to provide insights into the most effective policies
to support small business development in Morogoro and Tanzania at large.

1.3 Research objective

1.3.1 General objective

The major objective of this study is to determine the role of government policy in
small business growth in Morogoro, Tanzania.

1.3.2 Specific objectives

i. To identify the policies implemented by the government to support small

businesses in Morogoro.
ii. To evaluate the effectiveness of government policies in facilitating small
business growth in Morogoro.
iii. To assess the impact of government policies on access to financing for small
businesses in Morogoro.
iv. To evaluate the effectiveness of government efforts to provide business
training and development opportunities for small businesses and identify any
unfavorable government policies and evaluate their impact on small business
growth in Morogoro.
1.4 Research questions
 i. Does government policy has general support to the small business
growth?
ii. How effective are the government policies in facilitating small business
growth in Morogoro?
iii. What is the impact of government policies on access to financing for
small businesses in Morogoro?
iv. What is the effectiveness of the government's efforts to provide business
training and development opportunities for small businesses and what
are the unfavorable government policies that hinder small business
growth in Morogoro, and what is their impact?

1.5 Significant of the study

This study it enable us to know the role of government policy in small

business growth in Morogoro, such as; Enhancing business training and
development: Business training and development are critical for small business
growth, and the study will evaluate the effectiveness of government efforts to
provide business training and development opportunities. The findings can
inform policymakers and stakeholders on how to enhance business training and
development for small businesses.

Additional this study it influence Improving infrastructure development:

Infrastructure is critical for small business growth, and the study will assess the
impact of government efforts to improve infrastructure development. The
findings can inform policymakers and stakeholders on the most effective
infrastructure development strategies to support small business growth in
Morogoro. Lastly, it enable us to know them contributing to economic
development: Small businesses play a significant role in economic development,
and the study will provide insights into how government policies can support
their growth. The study's findings can contribute to the growth and sustainability
of small businesses in Morogoro and Tanzania at large.Overall, the study's
significance lies in its potential to contribute to the growth and sustainability of
small businesses in Morogoro and Tanzania at large and inform policy decisions
that support small business development (.
 1.6 Scope of the study

The study involve on investigating the various government policy and

initiatives aimed at promoting small business growth in Morogogo. The study could
include an analysis of the challenges faced by the small business growth, and the
effectiveness of these policies in promoting economic development. The scope could
also cover the types of small business that are prevalent in Morogoro, the factors that
contribute to the growth, and the role of the government policies in supporting them.
Additionally, the study could examine the government agencies responsible for
implementing small business policies, their effectiveness, and the challenges they face
in implementing these policies. Overall the scope of the study would be to analyse the
government policies and initiatives aimed at promoting small business growth in
Morogoro, Tanzania, and to identify the factors that contributes to their success or
failure. The study could provide recommendation for improving government policies
and initiatives to promote small business growth in the region and contribute to the
economic development of Tanzania.
 2.0 LITERATURE REVIEW

This chapter present definition of key terms, theoretical review,empirical

review and conceptual framework. The theoretical review it includes includes
definition of key terms and empirical part contains various studies that relate to this
study.

2.1 Definition of key terms

2.1.1 Govermenty policy

According to Dye(2005), government policy is whatever the government

choose to do or not do. They regulate conflicts within society, they organize society to
carry on conflict with other societies, they distribute a great variety of symbolic
rewards and material services to members of the society; and they extract money from
society most often in the form of tax. This government policy may regulate behavior,
organize bureaucracies, distribute benefit and collect tax or all things at once.

According to different scholar and articles we can categorized government policy into
three form which is regulatory, restrictive and facilitating government policy.

2.1.2 Regulatory government policy

Regulatory government policy refers to the laws, rules, and regulations created
by the government to control and manage various economic, social, political and
environment activities. The objective of regulatory policy is to ensure that regulations
are in public interest. It address the permanent need to ensure that regulations and
regulatory frame works are justfied, of good quality and fit the purpose. As an
intergral part of effective public government helps to shape to shape the relationship
between state, citizen and business, OECD(2011).

2.1.3 Restrictive government policy

Restrictive government policy refers to a set of laws, regulations, and actions

that limit individual freedoms and impose controls on certain activities, behaviors, or
groups within a society. These policies may be implemented for a variety of reasons,
such as to maintain social order, protect national security, or promote economic
stability, Kraft,m(2018).
 2.1.4 Facilitating government policy

Facilitating government policy refers to laws and regulations that encourage

and support certain activities or behaviors by providing resources and incentives. Here
is an exampleIn Tanzania, the government has implemented a facilitating policy for
small businesses through the establishment of the Small Industries Development
Organization (SIDO) in 1973. This policy provides business development services,
training, and financial support to help small businesses grow and be sustainable,
SIDO(2019).

2.1.5 Small business

According to the Small Industries Development Organization (SIDO) in

Tanzania, a small business is any business with an annual turnover of up to TZS 200
million (approximately USD 86,000) and employs less than 100 people. Small
business refers to independently owned and operated company that is limited in size
and revenue. Forinstance, in Tanzania, there are many small businesses such as
vegetable and fruit vendors, small retail shop, grocery stores, tailoring shop, beauty
salon, hand craft shops, small scale farming, photography and video services and
transportation services such as taxis, buses, and boda boda (motor cycle taxis).

2.2 Theoretical review

This section explain the theoretical frame work related to study.There are three
theories related to a study that explains the role of government in the growth of small
business which are resources dependence theory (1978), Social capital theory (1986)
and lnsitutional theory (1983). As in resources dependence thory (1978) suggest small
business are can be influenced by resources from external sources for their survival
and growth.

2.2.1 Resources dependence theory (1978)

This theory was introduced by Meffer and salarick in 1978. Resources

dependence theory suggests that organization, including small business are influenced
by the availability of resources from external source. The theory argues that small
business must manage their relationship with suppliers, customers, and other
stakeholders in order to gain access to critical resources that are nessesary for their
survival and growth.
 2.2.2 Social capital theory (1986)

This theory was introduced by Bourdieu in 1986.The theory suggest that

social network and relationship of small business can have significant impact on their
success. This theory argue that small business that are embedded in strong social
network are better able to access resources, information and support from other
members of their community. Social network can help small business build trust and
establish are reputation in their market

2.3 Empirical literature review

The case of government support policies, it is assumed that since government is in

the lead for entrepreneurial development, it should provide the much needed resources
within its capability. Such resources include provision of environment conducive to
business that will highly promote entrepreneurship. Government policy in this context
is any course of action which aims at regulating and improving the conditions of
SMEs in terms of supportive, implementation and funding policies by the
government. Based on this definition, government policy as it relates to
entrepreneurial practice is targeted at encouraging entrepreneurship by making a
favorable environment for the entrepreneurs. This, it does through enactment of
guidelines that will regulate entrepreneurial activity generally for the reason that
entrepreneurship is the bedrock of a nation’s path to industrialization. Furthermore,
government needs to enact policies that would be user friendly to the entrepreneurs.
Pals, S (2006) argued that there is a need for government policies as they relate to
entrepreneurship to be successfully implemented irrespective of which administration
is in power in order to achieve the goals of the guideline which often times is always
lacking

Existence of opportunities is considered critical for entrepreneurial activities to take

place. Khanka (1990) correctly argues that the role (responsiveness) of
entrepreneurship in economic development varies from economy to economy,
depending upon its material resources, industrial climate and responsiveness of the
political system to the entrepreneurial function. The implication of this is that in a
particular economy, we would expect more entrepreneurial activities and faster
business growth during a regime with more opportunities and freedom for private
business than in a restrictions regime. This is an interesting context for transition
economies in Africa.

Leibenstein (1986) argues that the entrepreneur motivation is not just monopoly
profit. Three other aspects of motivation are important. First, the entrepreneur can
employ himself and the members of his/her family in positions which are superior to
alternatives elsewhere. Second, the entrepreneur can set his work independence. Thus
creation of superior own employment and employment for family members could be
considered as success indicators for an enterprise. Such indicators are even more
important for micro and small businesses in Tanzania type economies.

Loans for micro businesses are seen as a powerful weapon in the fight against poverty
because they empower people to work their own way out of the poverty trap, they
avoid dependency and the ‘hand out’ shame of conventional aid (Sign-Post
International, 2006). By making small loans to people too poor to obtain credit from
the formal banking sector at fair rates of interest, repayment of those loans are thought
to become both possible and manageable; and as loans are repaid, the funds can be
recycled and loaned out again as part of a self-sustainable process. Micro credit has
thus become one of the buzzwords of contemporary development. It has been adopted
by key global institutions such as the World Bank, the IMF, bilateral development
agencies and a broad range of NGOs as a targeted strategy for local grassroots poverty
reduction. As such, microfinance has been incorporated into the global development
discourse; micro credit fulfils the economic ‘demands’ of the New Policy Agenda.
Micro credit and its idea of giving small scale loans to small groups of poor is a very
attractive option as a development strategy. It is a local approach that is seen as
leading to economic self-sufficiency, and thereby economically efficient
development. Furthermore, credit programs have also gained popularity because they
promise the possibility of cost recovery, which satisfies the ambitions for financially
sustainable development. Indeed micro credit has been predicted to become the future
panacea for poverty world-wide, and has been labelled ‘the key element for the 21st
century’s economic and social development’ (Rahman, 1999).

Another way for government to influence the nature and space for small and medium
sized enterprises (SMEs) development is through the differential impact of
governmental legislation on firms of different sizes. This refers to the facts that
‘policies which are wholly neutral in intension and in administration may be far from
neutral in their effects, because of the different circumstances of larger and small
firms (Bolton committee, 1917). Two broad types of cost which government places on
business may be identified: firstly, those direct costs which fall on firms such as the
costs of employers, social security contribution and secondly: the compliance costs of
meeting particular legislative requirements (Bannock and Peacock,1889).

2.4 Conceptual framework.

Conceptual framework is a scheme of concept (variables) which the researcher

operationalizes in order to achieve the set objectives,(Mugenda, 2003). A variable is a
measure characteristic that assumes different values among subject(Mugenda, 2003).
Independent variables are variables that a researcher manipulates in order to
determine its effect of influence on another variable, while the dependent variable
attempts to indicate the total influence arising from the influence of the independent
variable(Mugenda, 2003) .

Below are the role of government policy for small business growth for this case they
are the independent variables in this study.

Independent Variables Dependent

variable

loan

Infrastructure mean
Small business growth

Education

Nationality
 3. DATA
3.1 Data collection techniques

Data collection is a process of gathering information from related sources so as to

answer the research questions, to test the hypothesis and evaluate the outcomes of
research (Adam and Kamuzora,2008). Primary data is the type of data that is being
collected direct from the field (Adam and Kamuzora,2008). This type of data
collection the researcher gets the first-hand information or data directly from the field
which is known as original data.. The reliable primary data collected from the field
will target to discover the role of government policy on small business growth.

3.2 Data collection procedures

3.2.1 Questionnaire

It is a data collection instrument that consists of a set of predetermined and

structured questions that the subjected must answer in writing or the respondent fill
out through a self-administered questionnaire (msabila, 2013).There are two type of
questionnaire, the open ended and close ended questionnaire (msabila, 2013). In this
study the closed ended questionnaire was used to collect information according to the
researcher’s requirements. The researcher used this method because it has greater
advantage over other tools to obtain information both qualitative and quantitative
information.

3.3 Data analysis methods

Data analysis methods are methods involved in carrying out a study include planning,
designing, collecting data, analyzing, drawing meaningful interpretation and reporting
of the research findings. The objective of the data analysis process is to determine if
the observation support the hypotheses formulated before entering the field to collect
the information or reject them (Adam and Kamuzora, 2008)

3.3.1 Descriptive statistics

Descriptive statistics provide simple summaries about the sample and about the
observations that has been made. These summaries may either from the basis of the
initial description of the data as part of a more extensive statistical analysis, or they
may be sufficient in and themselves for a particular investigation (Mann. P, 1995)
 4.0 EMPIRICAL MODEL

Econometric model refers to the mathematical representations of the relationships and

measurement of the economic variables (Gujarat, D,2004).In this study the logit
model is suitable to be employed because the explained variable is binary variable
that assumes two opposing options as in which the small business may either be
growth or not due to government policy.

Dummy dependent indicates the event or outcome to occur or not( 0 or1)

Where by small bussines growth is termed = 1 and otherwise = 0

The data collected are in relationship between variables,

model could take the form of:

Small Business Growth = β0 + β1Loan + β2Education + β3Infrastructure Means +

β4Nationality + ε

where β0 is the intercept term, β1-β4 are the coefficients of the independent variables,
and ε is the error term.

Specifically, suggests that as the values of independent variables increase, the values
of dependent variable also increase. This positive relationship indicates that
government policy, as reflected in the independent variables, can have a significant
impact on small business growth in Morogoro, Tanzania.

The intercept term shoe the significance that even though no government intervention
by policy implementation to support the business invested by small man there still a
chance of growth among them by depend on other factor as experience, hard work,
capital and other.By support of p value of about 0.048 that show its statistical
significance.

- Loan: A positive coefficient for loan suggests that there is a significant positive
relationship between the loans provided by the government and small business growth
in Morogoro, Tanzania. The Pseudo R² value above 0.6743 indicates that the loan
variable explains at least 67.43% of the variability in small business growth. The p-
value of about 0.016 indicates that the relationship is statistically significant and
unlikely to be due to chance. Therefore, policies aimed at providing more loans to
small businesses can be an effective tool in promoting their growth.
Therefore, A binary dependent variable represented by a dummy variable indicates
whether an event or outcome occurred or not. In this case, the event is small business
growth, which is represented by a 1 when it occurs and a 0 when it does not occur.
The positive coefficients and statistically significant p-values for the independent
variables suggest that increasing access to loans can have a positive impact on the
likelihood of small business growth in Morogoro, Tanzania. Therefore, policies aimed
at these areas can be effective in promoting small business growth.
 5.0 RESULT/ANALYSIS

The econometric model of the situation of small business due to government policy is:

Small Business Growth = -4.144427 + .0000119 Loan + .1703396 Educ1

-.1093866Infrastructure Means1 +1.242464 Nationality

Where by;

Small business growth=1 if growth, 0 not growth

Educ1= 1 educated, 0 not educated

Infrastructure Means1 = 1 if financed, 0 not financed

Nationality= 1 if resident, 0 foreigner

Loan Availability:

Access to finance is a critical factor in the growth of small businesses in Morogoro,

Tanzania. The lack of access to finance is a significant obstacle for small businesses
looking to expand their operations or invest in new equipment or infrastructures.

According to a study by the International Finance Corporation, the Tanzanian

government has implemented several policies to increase access to finance for small
businesses, including the establishment of the Tanzania Investment Bank and the
Small Industries Development Organization (SIDO). These initiatives provide
financial support and training for small businesses, including loans and guarantees
that help to reduce the risk of lending to small businesses (IFC, 2019).
. probit businessgrowth income i.education i.finance i.nationaliti

Iteration 0: log likelihood = -17.287291

Iteration 1: log likelihood = -7.6417157
Iteration 2: log likelihood = -5.8211643
Iteration 3: log likelihood = -5.6345772
Iteration 4: log likelihood = -5.6308353
Iteration 5: log likelihood = -5.6308348

Probit regression Number of obs = 34

LR chi2(4) = 23.31
Prob > chi2 = 0.0001
Log likelihood = -5.6308348 Pseudo R2 = 0.6743

businessgrowth Coef. Std. Err. z P>|z| [95% Conf. Interval]

income .0000119 4.90e-06 2.42 0.016 2.25e-06 .0000215

education
educated .1703396 .8821408 0.19 0.847 -1.558625 1.899304

finance
financed -.1093866 1.03087 -0.11 0.915 -2.129855 1.911082

nationaliti
resident 1.242464 1.130534 1.10 0.272 -.9733423 3.458269
_cons -4.144427 2.099623 -1.97 0.048 -8.259612 -.0292423

- Loan: A positive coefficient for loan suggests that there is a significant positive
relationship between the loans provided by the government and small business growth
in Morogoro, Tanzania. The Pseudo R² value above 0.6743 indicates that the loan
variable explains at least 67.43% of the variability in small business growth. The p-
value of about 0.016 indicates that the relationship is statistically significant and
unlikely to be due to chance. Therefore, policies aimed at providing more loans to
small businesses can be an effective tool in promoting their growth.
 6.0 DISCUSSION OF RESULTS

Here is an result finding table based on the information we provided:

VARIABLE COEFFICIENT STANDARD P-VALUE

ERROR

Loan 0.0000119 4.90e-06 .0000215

Education .1703396 .8821408 1.899304

Infrastructure -.1093866 1.03087 1.911082

means

Nationality -.1093866 1.130534 1.911082

In terms of comparing the results to their theoretical analysis, research hypothesis

could have been that government policies aimed at increasing access to loans would
be positively associated with small business growth in Morogoro, Tanzania.

According to the theory of which can related to improvement of small business

growth explained as follows

Entrepreneurial orientation (EO) theory refers to a set of behaviors or characteristics

that distinguish entrepreneurs and entrepreneurial firms from non-entrepreneurial
ones. theory emphasizes the importance of taking calculated risks, being proactive
and innovative, seeking new opportunities, and being flexible and adaptable to
changing market conditions.

The concept was first introduced by Miller in 1983, and it has since been developed
and refined by a number of scholars, including Covin and Slevin (1989) and Lumpkin
and Dess (1996). The theory suggests that entrepreneurial firms with a high level of
Entrepreneurial orientation are more likely to achieve superior performance and
growth, compared to those with a lower level of Entrepreneurial orientation.

There are five dimensions of that are typically identified in the literature:
innovativeness, proactiveness, risk-taking, autonomy, and competitive aggressiveness.
Innovativeness refers to the ability to develop new and improved products, services,
or processes. Proactiveness involves taking initiative to identify and exploit
opportunities, rather than waiting for them to arise. Risk-taking refers to the
willingness to take calculated risks in pursuit of opportunities. Autonomy reflects the
degree of independence and flexibility that the firm has in decision-making and
action. Competitive aggressiveness refers to the firm's tendency to aggressively
pursue market opportunities and challenge competitors.

Research has shown that Entrepreneurial orientation is positively related to firm

performance and growth. For example, studies have found that firms with a high level
of Entrepreneurial orientation are more likely to introduce new products or services,
enter new markets, and achieve higher levels of sales growth and profitability (Covin
and Slevin, 1989; Wiklund, 1999).

Overall, the Entrepreneurial orientation theory provides way on how the education,
loans ,infrastructure, nationality have influence toward the growth of the small
business, according to result there is growth in There is agreement between the results
and the theoretical analysis, as the regression analysis supports the hypothesis that the
independent variables are positively associated with small business growth. However,
it is important to note that the regression analysis does not prove causality, and other
factors could be contributing to small business the region.
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