The impact of bank credit on economic growth in Tanzania.

Kihongosi, Wingred (2023) The impact of bank credit on economic growth in Tanzania. Masters thesis, The Open University of Tanzania.

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Abstract

The purpose of this study is to examine the causal relationship between bank credit and economic growth in Tanzania. Specifically, the study examined the causal relationship between bank credit by borrowing sector and economic growth. Time series data collected from Bank of Tanzania (BoT) and National Bureau of Standards (NBS) for the period 1980-2017 was used. The data was analyzed using Stata software. Current gross domestic product (GDP) is the dependent variable and proxy for economic growth while bank credit is the independent variable. Stationarity of the variables was tested using the Augmented Dickey-Fuller (ADF). All the variables were integrated of order one i.e., I (1). Descriptive statistics and multiple linear regressions were used to analyse the relationship between dependent variable and independent variables and obtaining necessary coefficients for determining the regression equation. Causality test and vector error correction (VECM) is applied. The finding reveals that there is a significant positive relationship between bank credit to the private sector and economic growth. The regression analysis found that 44% of the variability in economic growth is explained by bank credit. In addition, results show that there is causal relationship between bank credit and economic growth and between economic growth and bank credit. The study conclude that there is still need to enhance the growth of both the financial markets and banking sector, as they are key source of credit for the future performance of the economy. Policy makers need to facilitate establishment of policies to enhance access to credit from the financial system that will support efforts towards industrialization and thus economic growth by enhancing access to credit. Keywords: Bank, Economic Growth, Bank Credit, Inflation.

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