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This study aimed at examining the impact of financial liberalization on economic
growth in Tanzania. The importance of this study stem on the fact that previous
studies on the topic are of divided conclusions. Besides, the country under study has
yet achieved the satisfactory economic growth that translates into poverty reduction
among its citizens. As such, the study analysed short run and long run effect, possible
economic pathways, and conditional factors of the relationship between financial
liberalization and economic growth in Tanzania.
The study employed time series data from 1970 to 2017 to explore the topic. Data
were collected from Bank of Tanzania, National Bureau of Statistics, World Bank,
and United Nations Conference on Trade and Development. The study was guided
by time series design. Augmented Dicky-Fuller and Phillips-Perron were used for
unit root test, Bounds Approach for co-integration, Error Correction Model and
PROCESS Macro were applied for estimation of the study objectives.
The findings show that there is a long run effect of financial liberalization on
economic growth in Tanzania. The study also revealed that only one pathway (access
to finance) and conditional factor (government size) actively enhances the growth of
economy in Tanzania. This indicates that financial liberalization in Tanzania is
fruitful and augments economic growth. However, its transmission effect through
possible economic activities to economic growth is minimal to achieve the growth
target. Therefore, the study recommends review of policies of access to finance
activity and use of government funds in order to achieve targeted economic growth
in Tanzania. The study contributes on literature by employing mediation and moderation analyses, analysing possible economic activities and conditional factors of the finance-growth nexus. Besides, the study synthesized financial and endogenous theories to come up with the possible economic activities through which financial liberalization spurs
economic growth. |
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