Impact of International Trade on Economic Growth in Tanzania: 2001 - 2020.

Mwaifunga, Nassibu Richard (2025) Impact of International Trade on Economic Growth in Tanzania: 2001 - 2020. Masters thesis, The Open University of Tanzania.

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Abstract

This study examines the impact of international trade on the economic growth of Tanzania using quarterly time series data from 2001 to 2020. The research analyzes the effects of net exports, net imports, and exchange rate fluctuations on economic performance. The study employs econometric techniques, including the Autoregressive Distributed Lag (ARDL) model, Vector Auto regression (VAR), and Granger causality tests to determine both short-run and long-run relationships. Findings reveal that net exports have a significant positive effect on economic growth in the long run, while net imports and exchange rate depreciation negatively influence growth. The ARDL model, which is particularly suited for time series data with variables integrated at different orders, confirms that the economy adjusts back to equilibrium at a speed of 71% per quarter. The Bounds Test for Cointegration under the ARDL framework establishes a long-run relationship between trade variables and GDP growth. The Granger causality test establishes bidirectional causality between net exports and economic growth, indicating that exports drive GDP growth, while economic expansion further enhances exports. Net imports show a unidirectional causality with economic growth, implying that import changes significantly impact growth but not vice versa. The study further integrates the VAR model to analyze the short-term dynamics among trade variables, providing additional insights into the interplay between trade policies and economic fluctuations. Policy recommendations suggest that Tanzania should adopt export-led growth strategies, reduce import dependency through industrialization and import substitution, and stabilize the exchange rate through sound monetary policies. The study advocates for enhancing trade policies, improving infrastructure, and encouraging foreign direct investment (FDI) in key economic sectors to foster sustainable growth. Keywords: Economic Growth, International Trade, Export, Import.

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