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Tanzania has been pursuing an active exchange rate policy basically to maintain a viable external account position, and competitiveness of its products in the world market.
The estimated results demonstrate that exchange rate has a significant positive and negative impact on trade balance in the short-run.
Thus, currency depreciation has been a significant stimulus for country's exports growth and improvement in current account position only for short run.
The study found that the short-run behavior of the trade balance in response to real exchange rate shocks show an S-pattern rather than the J-curve pattern.
Therefore, there is a need for government to implement the policy that focuses on the production of imported-substituted goods.
Neema Mfugale is Assistant Lecturer at Stella Maris Mtwara University College.
She completed M.A in Economics and B.A in Economics from St.
Augustine University of Tanzania in 2013 and 2015 respectively.Her current research interests are in the areas of Economic Development,Public Finance and International Economics.
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