Empirical investigation of the effect of foreign direct investment on the development of DSE

Many developing countries including Tanzania have been receiving huge Foreign Direct Investment (FDI) inflows over the recent years. FDI inflow is good for host country economic growth in terms of technology spillover, employment creation and the wider social economic impact. Quite interestingly, the study between FDI and stock market development has attracted huge interests among the financial economists. The extent to which FDI contributes to the development of Dar es Salaam Stock Exchange (DSE) is still unknown. This study therefore is an empirical investigation of the effect of Foreign Direct Investment (FDI) on the development of DSE. Along with FDI, the study also examined the impact of other factors such as exchange rate, economic growth, domestic savings, openness to trade, and gross capital formation to see how they moderately or intervene the development of DSE. The main sources of data were Tanzania Investment Centre (TIC), Bank of Tanzania operations and statistical reports (BOT), National Bureau of Statistics (NBS), and Dar es Salaam Stock Exchange (DSE). Other sources include UNCTAD World Investment Reports, World Bank and IMF extracts. Ordinary Least Square (OLS) was used in the empirical analysis. EView econometric software was used to analyze data from 1999-2015. Using OLS analysis technique, the findings from this study revealed that FDI inflows do not have an effect on the development of DSE. That is to say, empirically Foreign Direct Investment has shown to have negative effect on the development of Dar es Salaam Stock Exchange. To ensure the development of Dar es Salaam Stock Exchange, extra efforts need to be devoted such as advocating prudent macroeconomic policies like exchange rate control, creating favorable environment for business, providing education to the general public about investments opportunities available at the stock markets.