Do Foreign Direct Investment Inflows Cause Economic Growth in Tanzania? The Granger Causality Test Approach
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Date
2015
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Journal ISSN
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Publisher
Journal of Economics and Sustainable Development
Abstract
This study assesses whether FDI inflows cause economic growth in Tanzania, it uses time series data covering a
period (1970-2014). The study also tests for the co integration between FDI inflows and economic growth. Data
pertaining FDI inflows and Gross Domestic Product (GDP) which is used as a measure of economic growth were
obtained from International Monetary Fund (IMF) statistics. The Granger causality test was used to test for the
causality between FDI inflows and GDP and co integration was tested using Johansen Co integration test. But
the major prerequisite for conducting these two (2) tests is that the time series data must not have a unit root i.e.
stationary, so the Augmented Dickey Fuller (ADF) test was carried out to check for the unit root. The results
from ADF test showed that the time series data for both FDI inflows and GDP did not have a unit root hence
making them appropriate for running the econometric tests needed. The results from Granger Causality Test
concluded that FDI inflows do cause economic growth in Tanzania and not vice versa. Lastly, the Johansen Co
integration Test results show that there is co integration or long term association between FDI inflows and
economic growth measured by GDP. So it is recommended that Tanzania and other emerging economies should
devise appropriate strategies such as efficient tax benefits to foreign investors, improve infrastructure and
improve the skills of human capital to attract FDI.
Description
Keywords
FDI inflows, Economic Growth, GDP
Citation
Marobhe, M. (2015). Do foreign direct investment inflows cause economic growth in Tanzania.6(24)? The granger causality test approach.:Journal of Economics and Sustainable Development.