Export Earnings Instability and Policy Measures for Stabilisation in Tanzania: Empirical and Qualitative Analyses

Abstract

Concern over export earnings instability in developing countries is based on the fact that, such instability implies uncertain supply of the much needed foreign exchange to the developing countries and thus limiting the growth prospects and ability of the countries to make effective investment plans.  This study employs an econometric model and qualitative analyses to examine determinants of export earnings instability and suggest possible policy measures for stabilising the earnings.  The analyses suggest that export earnings instability in Tanzania is mainly determined by its own one lag, the openness of the economy, Tanzania’s importance in world markets, and the country’s real per capita gross domestic product.  Contrary to the widely held view that commodity concentration was a statistically insignificant determinant factor.  The empirical results also suggest that as Tanzania increases her participation the global commodity markets, her export earnings become more unstable.  The qualitative analysis and empirical literature suggest that International Commodity Agreements are not effective in stabilising export earning.  However, these findings should not prompt one to prescribe inward looking policy measures to Tanzania.  The finding simply that in order to stabilise her export earnings, Tanzania should supplement her export drive with increased capacity to produce for exports and to participate in regional and global trade negotiations.  Policy recommendations from the analyses underscore the need for the Country’s Policy makers to make concerted efforts to provide famers with the necessary infrastructure, research and development; and accessibility to information about sources of finance and the availability of new export products and markets.