Financial intermediation, savings mobilization and economic growth in Tanzania, 1986-2002.

This study explores the impact of financial intermediation on savings mobilization and economic growth in Tanzania in post liberalization period. The study employs two stage least square method (2SLS) to evaluate the impact of financial intermediaries development in saving mobilization and economic growth. The study uses different proxy measures for financial development. The ratio of liquid liabilities of financial system to real GDP is used as an indicator for financial deepening while the ratio of credit to private to real GDP is used as a broad measure of banking development. The study is based on time series data for 1986-2002 periods. The empirical results suggest existence of a positive and significant relationship between the size of financial sector and economic growth. Contrary to the hypothesis, the analysis established a negative and insignificant relationship between the ratio of credit to private sector to gross domestic product (GDP) and economic growth. The study also shows that contrary to our a priori hypothesis financial liberalization has not increased private savings to impact on economic growth. Along these lines the study conclude with a set of policy guidelines for strengthening saving mobilization, highlighting the expected effects of government policy on financial development which is important for economic growth.