Determinants of economic growth in Tanzania for the period of 1970-2018
No Thumbnail Available
Date
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
The University of Dodoma
Abstract
Description
Dissertation (MA Economics)
Economic growing nation has potentials for fulfilling the needs of her population. Currently, the world is working towards achieving the Sustainable Development Goals (SDGs) by the year 2030. It is established that 26.4% of the Tanzania population lives in poverty. This study assessed the determinants of economic growth in Tanzania for the period of 1970 - 2018. Both short run and long run economic determinants were estimated in this study. The Gross Domestic Product was treated as dependent variable whereas; Foreign Direct Investment - net inflow, merchandised export, exchange rate and inflation as independent variables by applying time series analysis. The current study employed both Augmented Dickey Fuller test and Zivot- Andrews test to scrutinize the behavior of each variable. It was observed that the variables were stationary. The Johansen co-integration test and Vector Error Correction Model were used to analyze the data from 1970 - 2018. Empirical findings confirm that there was long-run relationship with speed of adjustment of 65%. The findings also indicate that both exchange rate and inflation share similar effect on country’s economic growth whereby a unit increase in either of the variables inversely affect economic growth at different levels of magnitude. The study findings further indicate that there is double causality between Gross Domestic Product and Inflation level. This is expected based on the fact that expansionary monetary policy that may include open market purchase, lower reserve rate and lending rate may result into price rise for stimulation of economies especially when experiencing economic downturn. Existing financial stability should continue to prevail in controlling the levels of inflation in an economy since the stable economy promises great prospect for long-term investment. However, the precaution should be observed from having tight monetary policy. The tight monetary policy may negatively harm business and investment opportunities, thus resulting into decline in total country’s production.
Economic growing nation has potentials for fulfilling the needs of her population. Currently, the world is working towards achieving the Sustainable Development Goals (SDGs) by the year 2030. It is established that 26.4% of the Tanzania population lives in poverty. This study assessed the determinants of economic growth in Tanzania for the period of 1970 - 2018. Both short run and long run economic determinants were estimated in this study. The Gross Domestic Product was treated as dependent variable whereas; Foreign Direct Investment - net inflow, merchandised export, exchange rate and inflation as independent variables by applying time series analysis. The current study employed both Augmented Dickey Fuller test and Zivot- Andrews test to scrutinize the behavior of each variable. It was observed that the variables were stationary. The Johansen co-integration test and Vector Error Correction Model were used to analyze the data from 1970 - 2018. Empirical findings confirm that there was long-run relationship with speed of adjustment of 65%. The findings also indicate that both exchange rate and inflation share similar effect on country’s economic growth whereby a unit increase in either of the variables inversely affect economic growth at different levels of magnitude. The study findings further indicate that there is double causality between Gross Domestic Product and Inflation level. This is expected based on the fact that expansionary monetary policy that may include open market purchase, lower reserve rate and lending rate may result into price rise for stimulation of economies especially when experiencing economic downturn. Existing financial stability should continue to prevail in controlling the levels of inflation in an economy since the stable economy promises great prospect for long-term investment. However, the precaution should be observed from having tight monetary policy. The tight monetary policy may negatively harm business and investment opportunities, thus resulting into decline in total country’s production.
Keywords
Economic growth, Gross Domestic Product, GDP, Inflation, Foreign Direct Investment, FDI, Exchange rate, Determinants of economic growth