Investment and endogenous growth in Tanzania: An empirical investigation

This study empirically investigates the factors that have influenced economic growth in Tanzania during the 1968-98 period by applying an endogenous growth type model to Tanzania data. The study employs cointergration analysis and estimates the Error Correction Model (ECM) using the Ordinary Least Square (OLS) estimation techniques. The econometric results, which support the endogenous-growth type model, indicate that private investment has positive impact on growth in Tanzania. The results also show that the effects associated with human capital accumulation positively influence growth. Public investment provides mixed results. In contrast to infrastructural public investment, which has a positive contribution to output growth, non-infrastructural public investment is found to have an adverse effect on output growth in Tanzania. The effect of structural reforms on growth is however positive but not strong. Furthermore, increases in overall fiscal deficit negatively impact economic while financial development has no influence on output growth in Tanzania.Th.is outcome is attributed to deep government control on financial sector before financial sector liberalisation and lack of a well-developed financial market. These findings imply that private and public investment, human capital accumulation and fiscal deficits play important role in influencing economic growth in Tanzania. Thus policies that foster private sector investment, infrastructural and human capital development are highly recommended. In addition, fiscal imbalances should be avoided and policies designed to maintain and enhance a prudent fiscal stance need to be implemented.