This paper empirically estimated threshold level of inflation, which is conducive for economic growth in the three founding EAC countries, Kenya, Tanzania and Uganda using panel data set for the period 1970 to 2013. The non-linear quadratic model was used to estimate the threshold level or the turning point beyond which inflation exerts a negative impact on economic growth. To examine the inflation-growth relationship other moderating variables were included in the model. It was found that credit to GDP ratio, degree of openness of the economy and foreign direct investment flows to EAC member states have significant and positive impact on growth.In determining threshold level of inflation for the three EAC member states, regression results of the random effect model establish that the average rate of inflation beyond 8.46 percent has negative and significant impact on economic growth. For individual countries, findings from the Seemingly Unrelated Regression (SUR), which treats each country separately, indicate that the optimal levels of inflation for Kenya, Tanzania and Uganda are 6.77 percent, 8.80 percent and 8.41 percent, respectively, beyond which inflation starts exerting cost on economic growth. The implication for monetary policy is that policy makers in the EAC member countries need to continue putting effort in achieving and maintaining single-digit level of inflation to support economic growth.
This study sought to evaluate factors that hinder processing 1 of rough tanzanite in Tanzania with greater emphasis on availability of raw materials, financial resources, skills and market. In addition, the study examined contribution of tanzanite processing activities to employment and revenue. This study used structured interviews to collect information from tanzanite miners, brokers and dealers. Information was also collected from the Ministry of Energy and Minerals, Tanzania Audit Agency and the State Minerals Company on the opportunities and challenges facing the industry. The findings suggest that contribution of processing activities to employment and revenue in the country is still low. The factors hindering processing of tanzanite locally are diverse and they include unpredictable supply of rough tanzanite, which is constrained by the use of poor mining technology, high competition for the rough tanzanite and small size of recovered stones. Other challenges are related to accessibility to financial resources, tanzanite processing technology and skills, as well as unreliable markets for cut and polished tanzanite. The study recommends that the government could consider the need to establish a tanzanite cutting and polishing export zone at Mirelani area, where tanzanite is mined. This would serve as marketing centre for rough tanzanite. The efforts to establish a special economic zone in the area could be hastened to enable ease access to market information, and promote processing activities locally facilitated by predictable supply of rough tanzanite. In addition, the government might provide tax incentives by reducing multiplicity of taxes payable to central and local governments as well as waive import duties on start-up equipment for both mining and processing activities.
The study examines the extent of exchange rate volatility and its impact on key macroeconomic variables such as exports, FDI inflows, interest rate and inflation in Tanzania, Kenya and Uganda. The GARCH model is used to compute the extent of exchange rate volatility while the Panel Autoregressive Distributed Lag (ARDL) technique or pooled mean group (PMG) estimator was used to estimate the effects of exchange rate volatility on selected macroeconomic variables. The results indicate that volatility in the exchange rate is a real issue in all the sampled countries and is fundamentally driven by exports and FDI dynamics for the period under consideration. The results indicate a positive impact of the exchange rate volatility to export performance and lending rates in the long run. Exchange rate volatility appears to be detrimental to both export performance and leads to a reduction in lending rates in the short run. Also, the response of FDI to exchange rate volatility seems to be negative in the long run while in the short run the response from the volatility of real exchange rate seems is insignificant. Though not significant, the volatility of the exchange rate appears to have a positive impact on inflation. The study recommends that policymakers need institute mitigation measures which could smooth out excessive exchange rate volatility to minimize its likely impact on the economy. The study also indicated a need for the EAC countries to consider adopting inflation targeting monetary policy framework in order to contain inflation at the appropriate level.
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