Determinants of Export Performance in Tanzania

Abstract

Abstract. Tanzania has been experiencing a persistent balance of trade deficit since the 1970s. This paper examines factors affecting export performance in Tanzania during the 1966-2015 period by employing Johansen cointegration and Granger causality approach. The Error Correction Modeling is employed to estimate the model. Based on the findings of cointegration approach the paper reveals that there is a stable long-run relationship between the series. Results suggest that economic real per capita GDP, trade liberalization, and exchange rate have a positive impact on export performance in Tanzania. The results also reveal that exports and official development assistance are negatively associated in the economy of Tanzania. Furthermore, the paper establishes the direction of causality between exports and economic growth. The results on this causal relationship suggest that real per capita GDP causes exports and not otherwise. This implies that that policies geared towards real per capita GDP should be given first priority if export trend is to be enhanced over time. Notwithstanding, from a policy point of view the macroeconomic instability is supported by the findings as inflation has a negative impact on exports. Increases inflation in the exporting economy than importing economy causes exports to become more expensive, resulting in a decline in exports. Keywords. Export, real per capita GDP, macroeconomic stability, trade liberalization. JEL. F14, F35, F43.