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1. International Capital Flows and Exchange Rates, a Dynamic Analysis: The Case of Tanzania.................. 1
20 October 2013
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International Capital Flows and Exchange Rates, a Dynamic Analysis: The Case of Tanzania
Author: Machemba, James D. M.
Publication info: The Claremont Graduate University, ProQuest, UMI Dissertations Publishing, 2013. 3558864.
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Abstract: This dissertation investigates the impact of international capital flows and other macroeconomic
fundamentals on the real exchange rate for Tanzania. In this dissertation I use a cointegrated vector
autoregression (CVAR) or Vector Error Correction (VECM) framework of the Johansen (1988) and Juselius
(1992) maximum likelihood estimation technique to assess the dynamic relationships among the real exchange
rate, international capital flows i.e. foreign direct investment, foreign aid, and other macroeconomic
fundamentals. For analysis of the short run structural VAR, I follow Sims (1986). Cholesky identification
restriction of the structural shocks (innovations) is employed to investigate the dynamic effects of international
capital flows, foreign aid, and other macroeconomic fundamentals on the real exchange rate by analyzing the
orthogonalized impulse response functions (OIRF) in the economy.
The econometric results from the cointegration model revealed two long-run cointegration equations, showing
that foreign direct investment and foreign aid have a statistically significant impact on the real exchange rate.
That is a 1 percent increase in foreign aid as a percent of GDP reduces the real effective exchange rate by 2.88
percent, while for foreign direct investment as a percent of GDP decreases real exchange rate by 5 percent-hence both appreciating the value of the currency in the economy. Analyzing the Vector Error Correction Model,
the speed of adjustments are significant and have an increasing impact on the real exchange rate toward the
equilibrium which are 27.76 percent and 29.19 percent, this indicates a rapid response of the real exchange rate
to deviations from its fundamentals; depreciating towards its initial equilibrium. The same results are supported
by the forecast from the model, indicating that there is less appreciation of the currency in the future. Analyzing
the impulse response functions I found that shocks are permanent in the economy. This study also used the
Structural VAR model to analyze sterilization of the Tanzanian economy. I recovered the structural coefficient
and found a significant impact of sterilization of the international capital flows of about 94.2 percent showing an
almost complete sterilization in the economy. Sterilization results were comprehended by the orthogonalized
impulse response functions.
Links: Linking Service
Subject: Economics;
Classification: 0501: Economics
Identifier / keyword: Social sciences, Cointegration, Exchange rates, Foreign direct investment, International
capital flows, Structural vector autoregression, Vector error correction
Number of pages: 99
Publication year: 2013
Degree date: 2013
School code: 0047
Source: DAI-A 74/08(E), Feb 2014
Place of publication: Ann Arbor
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Country of publication: United States
ISBN: 9781303034831
Advisor: Willett, Thomas D.
Committee member: Denzau, Arthur T., Efremidze, Levan
University/institution: The Claremont Graduate University
Department: School of Politics and Economics
University location: United States -- California
Degree: Ph.D.
Source type: Dissertations & Theses
Language: English
Document type: Dissertation/Thesis
Dissertation/thesis number: 3558864
ProQuest document ID: 1352757950
Document URL:
http://ccl.idm.oclc.org/login?url=http://search.proquest.com/docview/1352757950?accountid=10141
Copyright: Copyright ProQuest, UMI Dissertations Publishing 2013
Database: ProQuest Dissertations & Theses Full Text
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