Trade shocks and macroeconomic instability in Tanzania, 1970-2007

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University of Dar es Salaam
This study analyzes the impact of trade shocks to macroeconomic fluctuation in Tanzania during the 1970-2007 period. It test the proposition that trade shocks generate significant fractions of macroeconomic fluctuations in the domestics activity of Tanzania. In this study the effects of trade shocks on macroeconomic instability in investigated using annual time series data and co-integrated VAR approach. Empirical results of the study reveal that trade shocks generate a significant GDP Volatility. Econometric forecasting also indicates that in the long run capital goods prices have a positive correlation with GDP. The intermediate inputs prices shocks have a short run positive correlation before tending to negative correlation for a foreseeable future when related to GDP. Long range forecasting also suggests that primary export prices have negative correlation with GDP volatility. However, the empirical evidence has also shown there is a bi-directional causality between trade shocks proxies and GDP volatility. The policy implications of the study included the need to have robust policy interventions in the country’s trade sector, and the importance of supporting innovations for producing a great amount of import substitutes. In addition to a hold move to establish EPZs, the diversification of trade sector is also emphasized. Finally, an investigation of trade shocks as they affect real exchange rate, consumption, employment and investment in the country could be an area for further study.
Available in print form, East Africana Collection, Dr. Wilbert Chagula Library, Class Mark (THS EAF HF1014.T34M93)
Balance of trade, Economic instability, Tanzania
Mveyange, A. F (2009) Trade shocks and macroeconomic instability in Tanzania, 1970-2007, Master dissertation, University of Dar es Salaam