Determinants of trade imbalances in Tanzania (1980 – 2014)

This study analyzes the determinants of trade imbalances in Tanzania for the period 1980-2014. The experience of Tanzania shows that, despite numerous reforms undertaken in economic policy including trade policy, the country continuously faces a deficit trade balance. Various empirical works have been done to describe factors that characterize nature of country’s trade balance and results somehow have been mixed and inconsistent. More so, most of empirics ignore the role of trade policy reforms and do not account for the most recent data records either. The study employs the model used by Brada et al (1997) Mbayani (2006) and Tawi (2013), and Autoregressive Distributed Lags (ARDL) technique for analysis. Using this approach, the empirical results show that, foreign direct investment and trade liberalization policy had been impacting positively trade imbalance while real gross domestic product affects negatively trade balance. The findings imply that, foreign direct investment (FDI) and integrating a country more to international trade are essential in boosting the country trade position. Furthermore, the spending pattern of the economy at both household and government level determines the direction and magnitude of country trade position. Therefore, public policies which intend to control the prevailing trade deficit should account for the essence of controlling domestic spending.