Macroeconomic Determinants of Economic Growth after financial sector in Tanzania

Baramay, Bura Patrice (2015) Macroeconomic Determinants of Economic Growth after financial sector in Tanzania. Masters thesis, The Open University Of Tanzania.

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Abstract

The study analyses macroeconomic determinants of economic growth in Tanzania after financial sector reforms. It aims to examine the effect of Budget deficit (BD), Inflation rate (INFL), Exchange rate (EXCH) and Foreign Direct Investment (FDI) on economic growth in Tanzania. The study uses the Ordinary Least Square (OLS) and cointegration relationship among the variables. The data were collected from the Ministry of Finance (MOF) and multilateral organizations; UNCTAD, IMF and WDI. The data covered the period spanning from 1995 to 2013 and were interpolated in quarterly series. The findings indicate that budget deficits adversely affected economic growth in Tanzania during the period under study. From the findings an increase in the budget deficit resulted into declined economic growth. Further, the findings suggest a negative relationship between inflation and economic growth implying that increased inflation rate led to a decline of GDP. However, a positive relationship between economic growth and FDI and exchange rate was observed. Literally, an increase in economic growth induced the increased levels of FDI and exchange rate. Therefore, economic growth in Tanzania lead to increased inflow of FDI and depreciation of the Tanzanian shilling relative to other international currencies. The study recommends macroeconomic policy makers in Tanzania to revisit and analyse the effectiveness of existing policies on macroeconomics determinants after financial sector reforms.

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