Time series model for analysing economic factors and predicting the rate of deforestation in Tanzania

Deforestation in Tanzania is a complex issue with significant environmental concerns. This study examines the influence of key economic variables on deforestation rates over the period 1994 to 2014. Specifically, it investigates the roles of per capita income (measured in USD), per capita purchasing power, inflation (measured as the annual percentage change in the Consumer Price Index), poverty rates (measured via household consumption per capita) and electricity consumption (measured as electricity usage per capita in kilowatt-hours, adjusted for electricity prices and population). Data for this analysis were sourced from the National Bureau of Statistics (NBS) and the National Forest Resources Monitoring and Assessment (NAFORMA). Utilising Vector Autoregressive models with exogenous variables (VARX), the research identifies the VARX (3,1) model as the most effective in capturing the dynamics between these economic indicators and deforestation trends. Several tests were conducted when developing the model. They include stationarity tests, Granger causality test and Cointegration test. All tests conducted prove that the set of data collected could be used to predict the deforestation rates in Tanzania. Based on the model, forecasts were generated to predict future deforestation trends. Analysis of variance (ANOVA) was conducted, values of indicated that the model is suitable for forecasting of deforestation rates in Tanzania based on the selected economic variables. The model yielded a probability value of less than 0.05 and the 𝑅2 value of exceeding 87%. Sensitivity analysis was conducted for each parameter in the model. It indicated that the poverty rate is the most sensitive variable that exerts a strong positive effect on deforestation. Conversely, the inflation rate showed a negative relationship. The prediction shows an increase in deforestation for a significant amount in Tanzania. This study recommends that the government prioritize improving the livelihood of its citizens since the poverty rate was identified as the most influential factor driving deforestation. Additionally, given the rapid pace of urbanisation in Tanzania, the government should establish and enforce clear policies regulating the use of forest products such as timber as building materials. Such measures would help balance economic growth with environmental sustainability.