Pathways to Prosperity: Analysing the Dilemma of Choosing between Official Development Assistance and Foreign Direct Investment in Tanzania
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Date
2023-12
Journal Title
Journal ISSN
Volume Title
Publisher
African Journal of Accounting and Social Science Studies (AJASS)
Abstract
This paper explores the complex-decision decision-making process faced by
policymakers in Tanzania when selecting between Official Development
Assistance (ODA) and Foreign Direct Investment (FDI) for driving economic
prosperity. It employs the Vector Error Correction Model (VECM) to capture
dynamic interrelationships among long-run co-integrated variables. Analysing
yearly time series data from 1980 to 2021, the study reveals that variables used
in the analysis exhibit a co-integrating relationship and that they have a long-term
equilibrium relationship. Official Development Assistance per capita lagged to
one period and is significantly and negatively related to the growth rate of Gross
Domestic Product (GDP). Furthermore, ODA per capita lagged to two periods is
significantly and negatively related to the growth rate of GDP, and ODA lagged
to three periods is negatively related to the growth rate of GDP. Additionally,
FDI per capita lagged to one period and is negatively related to GDP. The paper
highlights the complexity of the decision-making process and recommends that
policymakers assess financing strategies, explore factors hindering positive
contributions of FDI and ODA and prioritize domestic investment to foster self-reliance and reduce dependence on external funding sources
Description
Keywords
Foreign Direct Investment, Official Development Assistance, Vector Error Correction Model, Economic Growth