The Impact of Exchange Rate Volatility on Economic Growth in Tanzania from 1986 to 2019.

Mathayo, Stella Ernest (2020) The Impact of Exchange Rate Volatility on Economic Growth in Tanzania from 1986 to 2019. Masters thesis, The Open University of Tanzania.

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Abstract

ABSTRACT The study assessed the impact of exchange rate volatility on the economic growth of Tanzania. The specific objectives were to assess the relationship between exchange rate volatility and economic growth in Tanzania, to examine the causal effect of exchange rate volatility on the economic growth of Tanzania, and to examine the impact of other macroeconomic variables on economic growth of Tanzania. The study used time series data of Tanzania for the period of (1986 to 2019) collected from the he Bank of Tanzania, National Bureau of Statistics and the World Bank. The study used Vector error correction model for estimation of the time series since the data were only stationary in first difference, and there was cointegration within the variables. Several econometric tests were carried out to ensure the validity and reliability of the data; they included normality test, multicollinearity, autocorrelation, heteroscedasticity and unit root tests. The study revealed exchange rate, inflation rate have a negative relationship with economic growth of Tanzania while terms of trade and trade openness have a positive effect on economic growth of Tanzania. Furthermore, the study revealed a unidirectional causality from exchange rate volatility to economic growth of Tanzania. The study recommends that government and monetary authorities should design policies that will stabilize the persistence volatility in the shillings’ exchange rate as well as implement laudable economic policies that will help stimulate the domestic economy. The study also recommends that policy makers should determine the inflation rate threshold level for Tanzania, and then introduce policies that will ensure the inflation rate is consistently at the threshold level so that it helps to keep the stable economic growth rate. keywords: Economic Growth, Exchange Rate, Trade Openness, Inflation.

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