The effect of macroeconomic factors on agricultural sector growth in Tanzania

Abstract

The agricultural sector in Tanzania is a significant contributor to the country's economy, but its growth has been impeded by various macroeconomic factors, including inflation, interest rates, and exchange rates. Therefore, the study assessed the effect of macroeconomic factors on agricultural sector growth in Tanzania. The study used Purchasing Power Parity Theory, the Expectations Theory and Cost Push Inflation Theory. A correlational research design applied, data covering the period from the year 1993 to 2023 were used. Data were sourced from reputable institutions, including the NBS, World Bank, and BOT. The descriptive analysis and time-series analysis were applied. The ARDL was used to estimate the relationships between variables. Results indicate that the interest rates, exchange rates, and inflation have a statistically significant negative effect on agricultural sector growth at p-values of 0.0458, 0.042, and 0.014, respectively. The negative effect of these variables on agricultural sector growth means that, when these variables increase, agricultural sector growth decreases and vice versa, hence the study draws a conclusion that, the exchange rate, interest rate, and inflation rate have negative effect on agricultural sector growth. The study recommends that policymakers should prioritize stabilizing these economic indicators and consider targeted support measures to mitigate their adverse effects ensuring the sector to thrive amidst fluctuating macroeconomic conditions. To mitigate these negative impacts, the government can provide subsidies to farmers in order to offset increased costs of production, renegotiating trade agreements with other countries to reduce tariffs and non-tariff barriers so that farmers can export their products at competitive prices.