Examining the determinants of import demand in Tanzania: An ARDL approach

Abstract

Objective: This study estimates the determinants of import demand in Tanzania using time-series data for the period from 1985 to 2015. Research Design & Methods: The study applied the ARDL approach on Tanzania’s time-series data to examine the key drivers of import demand. The study used both aggregate import demand model (i.e., Model 1) and disaggregated import demand models, i.e., Model 2 (for consumer goods), Model 3 (for intermediate goods) and Model 4 (for capital goods) to examine this linkage. Findings: The study found that in Model 1, aggregate imports in Tanzania are positively influenced by investment and exports, and negatively determined by trade policy. In Model 2, it was found that imports for consumer goods are positively influenced by consumer spending and foreign reserves, but negatively influenced by trade policy. In Model 3, imports for intermediate goods were found to be positively influenced by exports in the long run. Finally, in Model 4, the study found imports for capital goods to be positively influenced by exports (in the short- and long-run), but negatively influenced by investment (in the short-run). Implications & Recommendations: The study recommends that policymakers in Tanzania should strengthen their macroeconomic policies to ensure that their imports are not consumption-based and have an enhancing effect on the country’s economic activities. Contribution & Value Added: The study contributes to the empirical body of knowledge by incorporating various components of disaggregated import demand. This is an aspect that is scant in the existing literature as most previous studies only focused on aggregate import demand.

Keywords

• aggregate Imports
• disaggregated Imports
• Tanzania
• ARDL
• error correction model