Global shocks and their impact on the Tanzanian economy

Fiseha Haile

doi:10.5018/economics-ejournal.ja.2017-9

Abstract

Abstract Plummeting commodity prices, China’s economic slowdown and rebalancing, and global financial market turbulence have recently raised concerns about their effects on African economies. This paper investigates whether, and to what extent, these intertwined shocks spillover into the Tanzanian economy. The author finds that a 1 percentage point (ppts) drop in China’s investment growth is associated with a decline in Tanzania’s export growth of roughly 0.60 ppts. A 1 percent fall in commodity prices leads to 0.65 percent lower exports value. The results suggest that a hard landing of the Chinese economy to its ‘new normal’ would doubtless send shock waves through the Tanzanian economy by further driving down commodity demand and prices as well as lowering development finance. In contrast, financial market volatility has a fairly negligible impact on economic growth. The main results stand up well to a wide-array of robustness checks.

Highlights

Tanzania has posted high and sustained economic growth over the past decade, hovering around 6-7 percent
We find that the contemporaneous impact of a one se positive shock to domestic investment in China is an increase in Tanzania’s exports of about 0.05 percent
Two-long relations were detected, we focus on the first long-run equilibrium relationship, namely the GDP equation, because disentangling the contribution of private capital flows to the national economy and the growth impact of their volatility are of particular interest

Summary

Introduction

Tanzania has posted high and sustained economic growth over the past decade, hovering around 6-7 percent. Notwithstanding the overall positive short- to medium-term outlook (World Bank, 2016), the economy is not fully resilient to externally-induced shocks and, like many African economies, has recently been facing several growing and intertwined risks, including China’s economic slowdown, falling global commodity prices and, to a lesser extent, increased volatility in global financial and foreign exchange markets. Over the past decade or so, trade and investment links between Tanzania and China have reached historically unprecedented levels. China is one of Tanzania’s biggest trading partners and increasingly important source of development finance. China’s faltering growth may engender a significant knock-on effect on the Tanzanian economy via depressed export growth and potentially lower development finance

Results

Discussion

Conclusion