Effect of Trade Openness and Real Exchange Rate on Economic Growth in Tanzania

The purpose of this study was to assess the effect of trade openness and real exchange rate on economic growth in Tanzania. Secondary time series data collected annually for consecutive 47 years since 1970 to 2016 were analyzed. The study used the Autoregressive Distributed Lag (ARDL) to assess the long-run and short-run effects of trade openness, real exchange rate, and foreign direct investment on Real Gross Domestic Product. The results from analysis reveal the evidence on one hand that trade openness has a positive significant effect on economic growth in both the short and long-run, but real exchange rate and foreign direct investment have a positive significant effect in the long run on the other. As it was estimated that with trade openness more trade is developed in terms of exports and imports which in turn boosts the economy. The study recommends that, there is the need for country to support the domestic industrial development to produce more goods and services.