The Impact Of Foreign Direct Investment on Economic Growth in Tanzania from 1990 to 2013

Kabarole, Cyril Fred (2015) The Impact Of Foreign Direct Investment on Economic Growth in Tanzania from 1990 to 2013. Masters thesis, The Open University of Tanzania.

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Abstract

Foreign Direct Investment has been recognized as playing a facilitating role in the growth of the economy developing countries because it is an additional source of capital formation as well as having benefits such as creating employment on, transfer of technology and related spillover, development of skills, improving trade and competition as well as access to foreign markets. This study investigates empirically the relationship between FDI and economic growth in Tanzania by employing data on GDP annual growth rate, FDI inflow, gross capital formation, inflation, exports and labour force for the period 1970 – 2013. The data collected for the study was subjected to ADF unit root test to check for stationarity after which differencing was applied where appropriate. The result of the regression analysis shows the model has a significant capability to explain the relationship amongst the variables. The F statistic is statistically significant meaning the independent variables i.e. FDI inflow, gross capital formation, inflation, exports and labour are all significant to explain Growth in the economy. Then the Johansen cointegration test was performed and established that the variables have a long term association meaning they are cointegrated. The VECM test indicated that the variables have both long and short term causality. These findings were supported by the Granger causality test which establishedthat FDI and GCF jointly Granger cause GDPR, also GCF and GDP jointly Granger cause FDI suggesting there is a bi-directional causality implying that through economic growth FDI influences domestic investment. Empirical findings demonstrate FDI inflow, Gross capital formation, Exports trade, and an educated labour in conjunction influencing economic growth in Tanzania.

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