Analyzing the Impact of Exchange Rates on Trade Performance in Tanzania: A VECM Approach

Hafidh Ali Hafidh *

Zanzibar University, Tanzania.

Nahifa Said Soud

Zanzibar Research Center for Social-Economic and Policy Analysis, Tanzania.

*Author to whom correspondence should be addressed.


Abstract

This paper investigates the relationship between exchange rates and trade performance in Tanzania using a Vector Error Correction Model (VECM) analysis. The background discusses the importance of exchange rates in international trade and how fluctuating exchange rates can impact trade performance. The methodology section explains the research design, model specification, and estimation techniques employed, such as unit root tests, co-integration analysis, and VECM. The findings highlight a long-run positive relationship between exchange rates, foreign direct investment, GDP, and labor forces with trade performance, while inflation rate shows a negative impact. Granger causality tests reveal causal relationships between different variables and trade performance. The conclusions suggest policy recommendations for the government to enhance trade performance through fiscal and monetary policies and encourage further research in the field.

Keywords: Exchange rate, trade performance, VECM, Tanzania


How to Cite

Hafidh , Hafidh Ali, and Nahifa Said Soud. 2024. “Analyzing the Impact of Exchange Rates on Trade Performance in Tanzania: A VECM Approach”. Asian Journal of Economics, Business and Accounting 24 (6):26-34. https://doi.org/10.9734/ajeba/2024/v24i61340.

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