Effects of Fiscal and Monetary Policies on Agricultural Industry Growth in Tanzania from 1970 to 2022

Abstract

The study examined the effects of macroeconomic policies on agriculture industrial growth in Tanzania from 1970 to 2022. The Keynesian Theory and the Optimal Tax Theory to Tax Policy by Robin Boadway (2012) are used with the Mundell–Fleming model. The ARDL approach supported by Error Correction Model was used to check the long- and short-run nexus between dependent and independent variables. The findings indicated that fiscal policies had a positive and significant effect on agriculture industry growth wile for monetary policies, interest rate and money supply had a significant positive effect. The Autoregressive Distributed Lag and Error Correction Model indicated the presence of a long run relationship between fiscal and monetary policies and agriculture industry growth at large. The speed of long run growth for Monetary and fiscal policies on agriculture industry growth is 38.4%. The study concludes that macroeconomic policies are more effective on the general agriculture industry growth in the long run than in the short run. The key recommendation in this study is that policymakers should adopt expansionary fiscal (in line with the Keynesian theory) and monetary policies which stimulate both short and long run crop production and agricultural productivity growth in Tanzania.