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This study empirically analyzed economic growth, investment, and household consumption in
Tanzania based on the Ramsey-Cass-Koopmans model. Specifically, this study aimed at determining the factors
influencing consumption and investment, finding out the role that consumption and investment play in the economy,
deriving the country’s long-run economic growth model and identifying the factors influencing it, and lastly
determining optimal resource allocation both in decentralized and centralized settings. Empirical regression models
were specified to characterize the economy of Tanzania. The models estimated include economic growth,
investment, and household consumption. These regression models were estimated using OLS. The study covered
secondary annual data of 1970 – 2017 and analysis was carried out using Eviews9. Results showed that the major
significant factors affecting long-run economic growth rate in Tanzania include investment, labor force and inflation.
In a decentralized economy, results indicated that current investment in Tanzania is influenced by GDP growth rate
which seem to have the most significant impact. Also, investment, per capita GDP and Growth rate of GDP
influence current household consumption expenditure in Tanzania in decentralized economy. On the other hand,
results from centralized economy revealed that none of the variables involved seem to have the most significant
impact in influencing current investment in Tanzania implying that government activities in the economy are very
minimal though significant. GDP growth rate and savings are the factors influencing current household consumption
in a centralized economy. The study recommends that investors should be given more priority when formulating
policies to deal with economic growth in Tanzania. Public investment should be encouraged in areas that benefit
society and no private investment incentives. The government should create a conducive environment for private
investment to operate in the country. Household consumption expenditure should also be encouraged and engaged in
macroeconomic policies. In order to maintain high standards of household consumption, income fluctuations and
stable spending should be considered when dealing with inflation expectations in the country |
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