Impact of Causality Relationship between Financial Development Funds and Economic Growth in Tanzania: 1986 – 2020.

Mokiwa, Mkombozi Hassani (2023) Impact of Causality Relationship between Financial Development Funds and Economic Growth in Tanzania: 1986 – 2020. Masters thesis, The Open University of Tanzania.

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Abstract

The general objective of this study was to assess the impact of the causal relationship between financial development funds and economic growth in Tanzania from 1986 to 2020. The specific objectives were to examine in Tanzania the impact of the causal relationship between Domestic credit and economic growth, banks Government deposits and economic growth, Broad Money and economic growth. The study adopted time series design. Data were collected from Bank of Tanzania, the National Bureau of Statistics, and the World Bank. The study was guided by a model developed by Odedokun (1996) which is a modification of Neo – Classical growth theory and Financial Repression Hypothesis model McKinon (1973) and Shaw (1973). The study employed the Granger-causality method, combining four macro-economic variables in multiple causation modeling through the Auto Regressive Distributed Lag Model, since while other variables were stationary in the first difference 1(1), one variable was only stationary in the second difference 1(2), and there was cointegration within the variables. Several econometric tests were carried out to ensure the validity and reliability of the data; they included normality, multicollinearity, autocorrelation, heteroscedasticity, and unit root tests. Domestic credit revealed negative impact while Broad money and Banks Government deposit revealed positive impact to economic growth. In conclusion, there is two way causality relationships between Financial Development Funds and Economic growth in Tanzania. The study recommends that the government should design policies that will strengthen the financial sector which through intermediation will facilitate availability of fund for investment towards growth and stability of the economy. Keywords: Economic growth, Domestic Credit, Broad Money, Bank.

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