Effect of Net Exports on Economic Growth in Tanzania: Evidence from Time Series Data (2001–2020)

Abstract

 This study examined the effect of exports and imports on economic growth in Tanzania, using
quarterly time series data for 2001Q1–2020Q4. Drawing on Ricardian Comparative Advantage and ExportLed Growth (ELG) theory, the analysis employed an Autoregressive Distributed Lag (ARDL) model and
Granger-causality tests to identify both short-run dynamics and long-run relationships. Descriptive statistics
reveal steady but shock-prone growth, a persistent trade deficit (ln imports > ln exports) and notable
exchange-rate and inflation variability. Granger-causality results show bidirectional predictive links between
exports and growth and one-way causality from imports to growth. ARDL long-run estimates indicate that
exports and a more depreciated exchange rate (higher ln TZS/USD) are associated with higher growth
whereas imports are negatively associated with growth once exports and macro controls are held constant;
inflation is positively associated with growth, consistent with pro-cyclical price behavior, while foreign direct
investment (FDI) is statistically insignificant. Short-run results show that export shocks are initially
contractionary, import shocks expansionary and depreciation contractionary on impact, with a large and
significant error-correction term implying rapid convergence to the long-run path. The findings support a
calibrated ELG strategy that emphasizes export diversification and value addition, careful management of
import composition and exchange-rate and macroeconomic policies that safeguard competitiveness and
external sustainability in Tanzania.