Growth of Tobacco Exports in Zambia: An ARDL Approach

Abstract

Exports are a vital component of a nation’s balance of payments as they are source of foreign exchange and economic growth. Much of the economic growth in Zambia has been driven by copper exports which have suffered from external shocks such as plummeting prices on the world market. It is against this background that the Government of the Republic of Zambia (GRZ) has devised a number of measures to promote export diversification to non-traditional exports with a view to reducing heavy dependency on copper and stabilise foreign exchange earnings. The non-traditional exports have recorded growth averaging about 30 percent during the period. However, the key determinants of the growth of the non-traditional exports are unknown. This study therefore endeavored to determine factors that affect the growth of the main non-traditional export commodity in Zambia; Tobacco. The study employed annual time series data that spans a period of 34 years from 1980 to 2014. The ARDL approach to co-integration revealed that tobacco exports are co-integrated with foreign direct investment, real effective exchange rate, real GDP of trade partners, real interest rate and world price. The ARDL analysis revealed that tobacco exports are significantly affected by real effective exchange rate, real income of the trading partner and foreign direct investment in the short-run while only real effective exchange rate and the real income of the trading partner affect the growth of tobacco exports in the long-run. Apart from creating an enabling environment through diverse export incentives that increase influx of foreign direct investment, there is also need to maintain a stable exchange rate by the government if export diversification is to be realized.

Keywords: Growth, Non-traditional Exports, Co-integration, ARDL, Zambia