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Foreign Direct Investment (FDI) and exports play a significant role in promoting
economic growth in many countries. However, empirical studies have not found
consistent results, with some literature indicating that FDI and export have adverse
impacts to the economy. This study examined long run and causality relationships
between FDI, exports and economic growth for Tanzania. The study used time series
data for 30 years (1980- 2010) which were obtained from TIC and UNCTAD. By using
Johansen test of cointegration, Vector Autoregression model and Granger causality test
the study found that there was a single cointegrating vector. The equation was relating
FDI and exports (as independent variables) to Economic growth, the dependent variable.
Furthermore, there was unidirectional causality relationship with the direction from FDI
and exports to GDP growth rate (economic growth). There was also a unidirectional
causality with the direction from FDI to exports. Therefore, FDI Granger caused GDP
growth rate and exports, while exports Granger caused GDP growth rate only. This
further implied that, FDI have a direct and indirect causality to GDP growth rate. This
observation necessitated the special consideration for making FDI working for growth.
Likewise for total exports which had positive and significant relationship to economic
growth. The findings in this study support the export-led growth hypothesis and FDI as
the engine for economic growth. For export and FDI to effectively promote growth, the
study recommends that policy frameworks and incentive packages should be
competitive and vigorous enough. |
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