An Econometric Analysis of Trade and Economic Growth in Tanzania: Evidence from Time Series Data

Abstract

This article investigates the relationship between trade and economic growth in Tanzania for the period from 1970 to 2016. The article utilises the Autoregressive Distributed Lag Model known as the ARDL bounds testing to co-integration. In this article, it utilises a general-to-specific technique using the Ordinary Least Square (OLS) method on estimates, to come up with significant variables. Foreign direct investment, population growth and exchange rates were added to the model as explanatory variables. The empirical evidence confirms the existence of a long-run relationship between selected variables, implying that in the long-run, all variables can move together. The empirical results of the analysis reveal that exports, imports, foreign direct investment and exchange rates have a robust and significant influence on economic growth in Tanzania. However, population growth seems to have less insignificance compared to the other variables. As far as policy is concerned, the government should revisit trade policy measures to control imports and minimise trade deficit. This will in turn lead to momentous economic growth.