Effect of Foreign Aid on Economic Growth in Tanzania: 1980–2018.

Kachenje, Prochest Philip (2023) Effect of Foreign Aid on Economic Growth in Tanzania: 1980–2018. Masters thesis, The Open University of Tanzania.

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Abstract

The study assesses the effects of foreign aid on economic growth in Tanzania for the period 1980 to 2018. Tanzania has been facing low economic growth rates with low income per capita due to limited capacity to invest because of inadequate resources resulting from low savings rates and poor export performance. The study is guided by Theory of Aid and Economic Growth so as to encourage investment in Tanzania. This study analyzes the effect of foreign aid in economic growth in Tanzania by using a time series data of 1980 to 2018. The study used an ARDL Model for testing the presence of aid-growth relationship and more variables are included like government expenditure, foreign direct investment and openness to trade as central variables. The study found that, there is a significant negative long run relationship of foreign aid to economic growth in Tanzania whilst none in the short run. The variable of government expenditure had shown the positive significant impact to economic growth in Tanzania in short run and negative in long run while foreign direct investment and openness to trade have insignificant positive impact in the short run and negative impact in the long run. The study concludes that FDI and Openness to trade have insignificant positive impact in the short run and negative relationship to economic growth in the long run in Tanzania. Lastly, recommended that reduce current expenditures in order to improve macroeconomic indicators. Keywords: Foreign Direct Investment, Foreign Aid, Endogenous Variables, Tanzania

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