Trade liberalization and export performance in Tanzanian cashew nuts

Abstract

This study investigates the impact of trade liberalization on export performance on cashew nuts in Tanzania, employ time series data from 1970 to 2010. This paper employed both econometrics and non parametric techniques to estimate the impact of trade liberalization on export performance on cashew nuts.  Under econometrics techniques we applied cointegration technique, error correction modeling approach and trend analysis. Unit root test reveals that, all variables are non stationary at level and stationary at first difference respectively. Also Engle–Granger test for cointegration and Johansen test found that variables are cointegrated. This implies that cashew nuts export earnings; world price and real exchange rate have long run relationship (equilibrium). Empirical results from error correction modeling approach found an error term has a correct sign and statistically significant at 5 percent level. This means that world price and real exchange rate are adjusting towards long run equilibrium. The coefficient of error term of (-0.361547)    indicates that variables are adjusting to long run equilibrium at the speed of 36 percent per annum. The adjustment of variables suggests the existence of long relationship amongst the variables under study. World price found with a positive sign and statistically significant at 5 percent as such world price is an important determinant of cashew nuts export earnings in Tanzania. On other hand real exchange rate found with a correct sign but statistically insignificant. Trend analysis of cashew nuts export earnings found to be positive means that, it is improving over time. Non parametric technique reveals that trade liberalization is a significant strategy in Tanzania since its coefficient is statistically significant at 5 percent level.

Keywords: Trade liberalization, Export performance, Cashew nuts and export growth