Impact of FDI Inflows, Trade Openness and Inflation on the Manufacturing Export Performance of Tanzania: An Econometric Study

This paper investigates the impact of foreign direct investment (FDI), trade openness, inflation rate on the manufacturing exports performance of Tanzania over the period of 1980-2012 using the Ordinary Least Square (OLS) method and Vector Error Correction (VEC) model under the time series framework. The Augmented Dickey Fuller (ADF) and Philip-Perron (PP) tests were employed to test for the stationarity of the variables while the Johansen test was employed to test for co-integration relationship between variables, followed by the VEC regression model. The empirical results trace a long-run equilibrium relationship in the variables. The results of unit root suggested that both variables in the model were stationary after first difference. The results from regression analysis revealed that FDI inflows and trade openness have positive impact on manufacturing exports performance of Tanzania while inflation rate negatively affect manufacturing export performance. Since, FDI, Trade oppennes, and inflation rate were found to be important factors in explaining the changes in manufacturing exports both in the short run and long-run, the study concludes that Tanzania should formulate FDI and trade oppenness-led polices and reduce inflation rate to enhance its manufacturing exports performance.