Interrelationship among exchange rate, exports, and imports in the Tanzanian economy for the period 1993-2015

The main objective of this study was to examine the interaction of different macroeconomic variables in the Tanzanian economy. In accomplishing the main objective, a simultaneous equations model of eight stochastic equations and four identities was constructed for the period 1993 to 2015. Parameters of the model were estimated by Two Stage Least Squares (2SLS). Analysis found that there is a positive relationship between Gross Domestic Product (GDP) and Private consumption, positive relationship between export of cash crops and Import of oil; positive relationship between import of oil and import ability; positive relationship between import of machine and equipment and import ability; and negative relationship between exchange rate and lending rate. In obtaining relationship between exchange rate and import, results showed that exchange rate has negative impact on import of the rest (all imports excluding import of machines and equipment, foods and oil). In establishing relationship between exchange rate and export, it was found that exchange rate has a positive impact on export. In establishing relationship between investment and export, it was obtained from the analysis that export of the rest (includes all exports except export of cash crops) is positively related to investment. From the results obtained, since Investment positively affects export of the rest (includes all exports except export of cash crops) government should ensure conducive environment for investment in the country so as to stimulate export, moreover control measures on exchange rate should not be ignored since it has negative impact on import and positive impact on export.