Assessment of the Impact of Foreign Aid on Economic Growth of Tanzania.

Mallya, James Michael (2021) Assessment of the Impact of Foreign Aid on Economic Growth of Tanzania. Masters thesis, The Open University of Tanzania.

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Abstract

This study assessed the impact of foreign aid on economic growth of Tanzania by using time series data spanning from 1998 to 2018. The relationship between independent variables (exchange rates, inflation rates, foreign debt and political stability) and dependent variables GDP growth were collected and analyzed. An Augmented Dickey Fuller (ADF) and an ARDL bounds tests were used to test for stationarity of data and the existence of co-integration respectively. The study found that Growth is co-integrated with the rest of remaining variables that means there exists a long run relationship between Growth and the rest of the variables. After regression analysis conducted the findings of the study revealed that all four independent variables have a positive impact on the Gross Domestic Product of a country and therefore positively impact economic growth. Furthermore, the study concludes that the impact of foreign aid on economic growth of Tanzania are a positive one. As such, we can say that Tanzania promotes economic growth and suggest that the Tanzanian government embrace policies that aim to attract not only more Foreign Aid but also influence Foreign Direct Investments (FDI), through multiplier effect could create more employment and alleviate poverty while micro-managing the same to avoid the negative impacts of inflation. As a policy options, the Tanzania’s government should encourage macroeconomic policies that favors and promote Foreign Aids, 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. Keywords: Exchange Rates, Inflation Rates, Foreign Debt, Political Stability and Economic Growth.

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