The Effects of Exchange Rates Volatility and Inflation on Tanzania’s Trade Balance: Evidence from J-Curve Effect
الملخص
All economies today are experiencing the volatility of exchange rates and inflation in global markets. Consequently, this affects the trade performance among trading partners globally. This study examines the effects of exchange rate volatility and inflation on Tanzania’s trade balance. Time series data spanning 1990 to 2020 were used from the World Bank and Bank of Tanzania (BOT). Moreover, J-Curve and Marshall Lerner's theories provided the theoretical arguments. Systematically, a Vector Error Correction Model (VECM) was employed for short- and long-run analysis. The findings reveal that, in the long run, inflation, Foreign Direct Investment, and Gross Domestic Product have a positive impact on the trade balance, while the Exchange Rate exerts a negative influence. In the short run, the exchange rate negatively affects Foreign Direct Investment, while Gross Domestic Product has a positive influence. Further, the gross domestic product also positively influences inflation. Furthermore, the exchange rate and gross domestic product significantly affect the trade balance negatively and positively respectively. Analysis of impulse response functions confirms the presence of the J-Curve effect, showing an initial deterioration in the trade balance following a depreciation of the domestic currency, which reverses after three periods. These findings suggest the need for effective exchange rate management, promotion of export competitiveness, and a good environment for foreign direct investment to enhance trade performance in Tanzania
التنزيلات
المراجع
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الحقوق الفكرية (c) 2024 Seth Kenedi Mbwambo, Ephrahim Welnery Mchukwa
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