Analysis of inflation on export performance in Tanzania: Granger - causality analysis (1971 – 2012)

Abstract

The objective of this study was to determine empirically the causal relationship between inflation and export in Tanzania. Annual time  series data covering the period between 1971 and 2012 was used. The Augmented Dickey Fuller (ADF) test was conducted to find the  existence of unit root in each of the time series variables and the maximal order of integration (d) for both variables and it was found that  there was no unit root. The Engle and Granger test and Johansen’s Cointegration test were used to test for cointegration and it was  revealed that there was no long-run relationship between the variables. Furthermore, the directions of causality between the two  variables were studied based on the Granger Causality test and found that there was one way causality from export to inflation (i.e.  Export granger-cause Inflation). The study therefore, proved that there was unidirection causality from export to inflation in Tanzania for  the period from 1971 to 2012.