The Influence of Exchange Rate, Trade Openness, Inflation, and Gross Domestic Product on Stock Market Performance in Tanzania

The research focused on the connection between the exchange rate, trade openness, inflation, the gross domestic product (GDP) growth rate, and stock market performance, specifically market capitalisation, in Tanzania at Dar es Salaam Stock Exchange (DSE). The secondary quarterly time series data from 2006Q1 to 2023Q4 were analysed in this study, sourced from the Bank of Tanzania, the National Bureau of Statistics, and the Dar es Salaam Stock Exchange. Using a quantitative approach, the study applied the ARDL Model to analyse the data after testing for cointegration with the ARDL Bounds Test. The Error Correction Model accounted for short-run dynamics, with Granger Causality serving as a robustness test. The study found a significant and positive relationship between exchange rate, GDP growth rate, and trade openness and stock market capitalisation in the long-run, with inflation having no significant effect. The results further show that exchange rate changes remain significantly positive in the short-run regardless of the insignificant effects of trade openness and GDP. Moreover, the results signal a minimal, significant negative effect for inflation. The results underscore strengthening fiscal and monetary policies and regulations to boost investor’s confidence and improve listings to further boost Tanzania’s stock market capitalisation. Enhanced market performance can expedite the execution of Tanzania’s 2050 development vision which pinpoints the stock market as a source of financing for development projects.