Determinants of Foreign Direct Investment Inflows in Tanzania

Abstract

This study examines the determinants of foreign direct investment (FDI) inflows in Tanzania using the Autoregressive Distributed Lag (ARDL) model with data spanning from 1970 to 2023. The ARDL approach was chosen for its robustness in handling non-stationary data with mixed order of integration and capturing both short-term and long-term dynamic relationships. The findings indicate that GDP, exchange rate and trade openness significantly influence FDI inflows. A higher GDP positively affects FDI, reflecting market attractiveness, while trade openness facilitates investment by improving market access. However, the exchange rate negatively affects FDI inflows. Policy recommendations emphasize fostering economic growth, promoting trade liberalization and stabilizing the exchange rate through effective monetary policies. Ensuring economic stability and reducing trade barriers will create a more favorable investment environment, attracting more FDI and promoting long-term economic growth.

JEL Classification : F21; F43; O41.