The impact of foreign direct Investment (FDI) On economic growth in Tanzania

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University of Dar es Salaam
This study investigates the impact that Foreign Direct Investment (FDI) has on economic growth in Tanzania. Tanzania is ranked in the top ten of the top FDI recipients in Africa as it is one of the most attractive investment destinations in Africa. The study covers a period of 43 years and applies the Vector Error Correction Method (VECM) to investigate the impact of FDI on economic growth. The empirical results show that FDI affects economic growth both directly through increase in GDP and indirect through increase in exports. This implies that the channels in which FDI affects economic growth in Tanzania are through incorporation of new inputs of production; transfer of superior technology and through the increase in capacity and domestic competitions. Moreover, the study found out that FDI `crowds out` domestic investment both in the short-run and the long-run, which implies that FDI does not augment domestic savings in the process of capital accumulation in Tanzania. Therefore, there is a need for the government to shift the attention from promotion campaigns to concentrate on solving the existing challenges that investors face so that the country can gain maximum benefits from FDI. This can be done through a number of ways such as giving the Tanzania Investment Centre (TIC) more mandates to commence facilitative role, put more emphasis on the Private Sector Development and the participation in international agreements and memberships that promote and protect foreign investments.
Available in printed form, East Africana Collection, Dr. Wilbert Chagula Library, Class mark (THS EAF HG5847.F55)
Investments, Foreign, Economic conditions, Tanzania
Fimbo, M,J (2014) The impact of foreign direct Investment (FDI) On economic growth in Tanzania.Master dissertation, University of Dar es Salaam, Dar es Salaam.