Effects of Foreign Direct Investment (FDI) on Economic Growth in Tanzania 1990-2010

Mgimwa, Janeth (2017) Effects of Foreign Direct Investment (FDI) on Economic Growth in Tanzania 1990-2010. Masters thesis, The Open University of Tanzania.

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Abstract

The study examined the effects of foreign direct investment on economic growth in Tanzania 1990-2010. There is influx of FDI in Tanzania but its contribution to GDP growth and human development is limited, the FDI attraction like tax holiday bring a hot debate. The study utilized the Descriptive Statistics, Augmented Dickey-Fuller and the Philip Perron tests to examine the properties of the variables. It was also observed that all the variables except GROWTH are not co-integrated. The study also found that GROWTH is co-integrated with the rest of the variables. The ARDL results show that the coefficient of GDP growth lagged once, the rest of the variables, however, appear to be not statistically significant. Furthermore, the results show that GROWTH and exchange rate considered individually Granger cause FDI and the rest of the variables are positively related. However, when considered jointly, the variables jointly appear to Granger cause FDI. In addition, GROWTH appears to Granger cause Exchange rate. Also, no variable appear to Granger cause the foreign debt. We therefore, accept the null hypothesis and conclude that, there is no causality of whatever. As a policy options, the Tanzania’s government should encourage macroeconomic policies that favour and promote the FDIs, and also should be more open to the international markets in light of promoting economic growth and development while at the same time, trying to curb inflation. These findings have led to the conclusion that the overall effects of foreign direct investment on economic growth in Tanzania are a positive one. Tanzania promotes economic growth and suggest that the Tanzanian government embrace policies that aim to attract more foreign investors and create more employment while micro-managing the same to avoid the negative impacts of inflation.

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