The Impact of Foreign Direct Investment on Economic Growth in Tanzania 1975-2013

Asajile, Uswege (2014) The Impact of Foreign Direct Investment on Economic Growth in Tanzania 1975-2013. Masters thesis, The Open University of Tanzania.

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Abstract

This study examined the dynamic relationships among GDP growth rate, FDI, trade openness, inflation rate and government spending in Tanzania over the period 1975-2013. 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 both the Augmented Dickey-Fuller (ADF) and the Philip Perron (PP) tests to examine the properties of the variables. It was observed that the variables were stationary, although not in their level form but in their first difference. It was also observed that all the variables except GROWTH, are not cointegrated . The study also found that GROWTH is cointegrated with the rest of the variables (i.e., there exists a long run relationship between growth and 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 trade openness considered individually Granger cause FDI and the rest of the variables do not. However, when considered jointly, the variables jointly appear to Granger cause FDI. In addition, GROWTH appears to Granger cause trade openness. Also, no variable appear to Granger cause the government spending. 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.

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