Trade and Foreign Direct Investment in Tanzania: Do they Matter for Economic Growth?

Authors

DOI:

https://doi.org/10.56279/ter.v11i2.82

Keywords:

trade, FDI, economic growth, time-series, Tanzania

Abstract

This paper analyses the effect of trade and foreign direct investments (FDI) on Tanzania’s economic growth using time-series data from 1970 to 2019. All the variables are found to be integrated of order one, I (1). The study applies the cointegration test and a VECM accordingly. The Johansen test underscores the presence of two co-integrating equations, which confirms the long-run associations between variables. The VECM demonstrates the presence of a long-run relationship running from FDI, TRD, and EXR to GDP growth. While the Wald test reveals the presence of short-run causality running from FDI and TRD to GPD; however, there is no short-run causality from EXR to GDP. The study concludes that there is a positive relationship between the explanatory variables and economic growth. Therefore, the Tanzanian government should encourage exports to realize the potential effects of trade and FDI on economic growth.

JEL Classification: O4, F1, FE

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Author Biography

Petro Sauti Magai, University of Dar es Salaam

University of Dar es Salaam Business School (UDBS)

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Published

2022-02-28

How to Cite

Magai, P. (2022). Trade and Foreign Direct Investment in Tanzania: Do they Matter for Economic Growth?. Tanzanian Economic Review, 11(2), 22–40. https://doi.org/10.56279/ter.v11i2.82

Issue

Vol. 11 No. 2 (2021): Tanzanian Economic Review

Section

Articles

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