Trade Openness and Economic Growth of Tanzania

Abstract

Trade openness is very crucial in the achievement of any rapid economic take off for any country. Realizing that in 1996, Tanzania government initiated economic recovery program to address the economic problem. One among them was Trade liberalization implementation. This paper examines the impact of trade openness on economic growth in Tanzania for the period 1981 to 2017.  The study utilized co-integration and Vector Error Correction Mechanism (VECM) Approach to test the relationship between trade openness and economic growth and granger causality test to examine the causal relationship between variable. The unit root tests showed that all variables were integrated after taking first difference, the Johansen co-integration result showed that the variables were co-integrated. The VECM estimate showed that there is positive long run relationship between trade openness and economic growth in Tanzania over the study period, this positive result of trade openness is possibly attributable to the fact that Tanzania unlocked its borders to international trades. In addition, granger causality test revealed that, there is no causal relationship between Trade openness and economic growth in Tanzania. Based on these findings, this study recommended that Government should encourage the production of domestic products for export purpose by developing more domestic industries and attracts more investors in the economy which will lead to increase the per capita income as well as foreign earnings that will promote economic growth of Tanzania.