FOREIGN TRADE AND ECONOMIC SUSTAINABILITY IN TANZANIA

Abstract

Foreign trade has been a pivotal driver of economic growth in various countries, acting as a bridge between the nation's abundant resources and the global market. However, the extent to which Tanzania has fully leveraged its trade potential remains a subject of concern. The study investigates the long-run impact of foreign trade on Tanzania's economic growth, specifically analysing how exports and imports from 1990 to 2023 have influenced GDP. The study’s specific objectives include: (i) analyse the dynamics of foreign trade in Tanzania economy from 1990 to 2023; (ii) to determine the significance of export on Tanzania economic growth and finally, (iii) to investigate the influence of imports on Tanzania economic growth. Using a long-run model with time-series data collected from the World Bank, the findings reveal that while exports, driven largely by agriculture and minerals, have generally increased, imports consistently outpace them, resulting in trade deficits that limit economic growth. In addition, the study found that exports positively impact GDP growth, with a 0.22% increase in GDP for every 1% rise in export volume; however, the reliance on primary commodities makes the export sector vulnerable to global price fluctuations, necessitating the need for export diversification. Imports, on the other hand, have a negative impact, with each 1 % increase in import volume reducing GDP by 0.45%, largely due to consumer goods imports that contribute to trade imbalances. The findings imply that, Tanzania could improve its trade balance, reduce foreign exchange outflows, and stimulate industrialization. Therefore, the study recommends that policymakers and stakeholders prioritize export diversification, import substitution, and industrialization strategies to enhance Tanzania’s trade performance and ensure sustainable growth.