The Impact of Industry and Trade on Economic Growth in Tanzania: Autoregressive Distributed Lag (ARDL) Analysis

Abstract

This paper examines the impact of industry and trade on economic growth in Tanzania utilizing the autoregressive distributed lag (ARDL) model. Augmented Dicker Fuller (ADF) and cointegration Bound test are employed to determine the unit root and cointegration amongst the variables respectively. Under ARDL model the study estimate the long run and short results as well as error correction term (ECM). Unit root results show that some variables are stationary at level and some is non-stationary at level. At first difference all the variables are stationary. Thus, with results ARDL analysis is inevitable in the study. Cointegration bound test finds the long run relationship amongst the variables means variables are cointegrated. In long run results the study find that industry has positive impact on economic growth whereas trade has negative impact on economic growth in Tanzania. Conversely, in short run all the variables have positive impact on economic growth under period of study. Error correction term has a proper sign and statistically significant that is variables are converging towards the equilibrium at the speed of 16 percent per annum to restore the equilibrium. Therefore, these results alarming the government to take some actions regarding the long run results in trade so as to improve the contribution on economic growth. This is quite possible due to fact that all these sectors are cointegrated so any government interventions will improve the sectors concurrently and ultimately stimulate the economic growth in Tanzania.