Exchange rate volatility and traditional exports in Tanzania

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University of Dar es Salaam
This study sought to determine and analyse the impact of real exchange rate volatility on the performance of the traditional exports sector for the 1980-2005 period. The study hypothesizes that there is a negative relationship between the real exchange rate volatility and the performance of the traditional exports sector. This study takes a new empirical look at the longstanding question of the effect of exchange rate volatility on international trade flows by studying the case of Tanzania’s traditional Heteroscedasticity (GARCH) specification. Typically GARCH (1.1) is employed as the measure of volatility. Thereafter, time series properties of data are investigated and the cointegration test is carried out, ultimately the ECM is estimated using the Least Squares Method. The main finding of the study reveals that, exchange rate volatility has negative impact on agricultural trade volumes. The study however recommends a monetary authority intervention in the foreign exchange market to minimize erratic and chaotic fluctuations so as to stabilize exchange rates and do away with speculative frenzies and bandwagon effects. An interesting area for further study could be employing sectoral level data and the multivariate GAECH-M estimator, considering the traders’ forward-looking contracting behavior and precisely investigate the responsiveness and sensitivity of each secto real exchange rate volatility in the economy.
Available in print form, EAF Collection, Dr. Wilbert Chagula Library, (THS EAF HG3877.T34P38)
Foreign exchange rate, Exports, Tanzania
Paul, C (2007) Exchange rate volatility and traditional exports in Tanzania. Master dissertation, University of Dar es Salaam