Current Account Balance and Economic Growth in Tanzania

Abstract

This study examines the link that exists between Tanzania's current account balance and economic growth. The analysis is based on a critical investigation of behavior of current account balance components towards economic growth. The study uses Ordinary Least Square estimation technique on time series data for the period 1980 to 2012 to determine the relationship between the components of current account balance and growth. The findings of this study show that each component of current account balance has its own impact on Tanzania's economic growth. Merchandize trade has been found to be a major component of current account but one that negatively influence economic. Trade based on services only, net factor income from abroad as well as current transfers have been found to positively relate to economic growth, however, current transfers are found to slightly influence economic growth due to the nature of its components. This implies that from a policy perspective efforts should focus on merchandize trade balance in order that growth may be promoted to the higher levels as envisaged in the vision document.