Assessment of the Determinants of Balance of Payment in Tanzania
Abstract
The purpose of the study was to assess the determinants of the balance of payment in Tanzania. The nature of this study was quantitative where secondary time series data covering a period of thirty-one years between 1990 and 2020 were collected. The study performed descriptive statistics and diagnostic tests such as normality test, unit root test for stationarity, Pearson’s Correlation matrix to check if there is a multicollinearity problem in the data. The diagnostic tests revealed that the data bring unbiased results, therefore the ordinary least square regression was performed and we found that foreign direct investment and inflation rate have a negative and significant influence on the balance of payment, whereas exchange rate has a positive and insignificant influence on the balance of payment, and the interest rate has an insignificant negative influence on the balance of payment. Finally, we recommend that a country have to introduce relative prices of imports in order to improve the inflows of FDI in order to have a favourable balance of payment in a country like Tanzania. Also, Tanzania's central bank must be cautious in its monetary policy and take some beneficial steps to regulate the money supply. To attract the new internal investor, it must keep an eye on interest rates and charge a low-interest rate.
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