Empirical Research on Foreign Direct Investment and Economic Growth in Tanzania

Tanzania has continued to experience an unprecedented increase in Foreign Direct Investment
 (FDI) inflows for the past three decades. Using a vector error correction model (VECM) on data
 on Tanzania for the 1980–2020 period, we find the bi-causality between economic growth and FDI
 net inflows in the short and long run. The results imply that in Tanzania, FDI is associated
 with an increase in income; at the same time, economic growth leads to FDI eventually and stirs
 movements in FDI. In addition, our results show a strong (positive) relationship between the
 variables, which means that foreign direct investments (FDI) significantly impact the country's
 financial inflows. We believe that a well-developed and productive local capacity will
 eventually benefit from FDI. Nonetheless, this is only possible through the provision of
 incentives to foreign firms so that they may provide positive spill overs to other sectors.
