Foreign Direct Investment and Tanzania Economic Performance: An Empirical Analysis Over 1980-2020 Period

Abstract

This paper provides an empirical analysis of foreign direct investments and economic performance in Tanzania
over the 1980-2020 period. The main objective of the study was to assess the influence of foreign direct investments (FDI) on
the economic growth trends in Tanzania over the 1980-2020 period. Specifically, this paper sought to assess the extent to
which FDIs have played a role in influencing economic growth in Tanzania. This study employed the Augmented Dickey-
Fuller (ADF) and Phillips-Perron unit root tests were carried out to test for unit root. A test for cointegration reveals that
there is cointegration and only one maximum rank of this cointegration thus an Error Correction Model (ECM) is applied to
mitigate cointegration followed by the Engle-Granger two-step procedures because there is only one cointegrating vector.
Generally, the findings show that the error correction model is positively related to economic growth implying that, GDP
growth expands as FDI increases. Domestic investment is negatively related to economic growth implying that FDIs “crowd
out” domestic investment. The exchange rate is positively related to economic growth which leads to the appreciation of a
domestic currency.