The Impact of Trade Liberalization on Economic Growth in Tanzania

The broad objective of this study is to analyze the effect of trade liberalization on economic growth in Tanzania. The impact of trade liberalization on economic growth has raised a great attention to many researchers in the international trade arena. Various studies have been conducted however the literature still has the mixed bag of results. Thus, the researchers were motivated to pursue this study so as to fill the gap in the International Trade in Tanzania. The study adopted a simple linear regression model where real GDP was the dependent variable while trade openness was the independent variable. Annual time series data was used covering the period 1970-2010. This overall period was then subdivided into a closed economy period (1970-1985) and a open economy period (1986-2010). OLS technique was used to estimate the regression model twice, regarding the two sub-periods. The empirical findings indicated that trade openness had a positive and significant effect on economic growth in Tanzania. However, this effect was relatively greater during the closed economy compared to the open economy period. It has been indicated that since late 1980s Tanzania experienced continuous trade deficits in her accounts. This has been the contributing factor in the obtained results. Thus, the study recommended that there is a need for the country to put strong initiative on adding value on her exports so as to compensate for imports. There is a need of developing more domestic industries and attracting more investors in the economy. Also the elimination of unnecessary tariffs is required.