Analysis of the Impact of Foreign Direct Investment on Tanzania’s Economic Growth (1987 – 2024)

FDI is a fundamental key driver for economic development in developing countries especially through technology transfer. The main objective of this study was to examine the impact of FDI inflow on economic growth in Tanzania. Specifically, the study focused on examining the contribution of FDI on Tanzania’s economic growth, examining the contribution of trade openness on Tanzania’s economic growth and examining the contribution of interest rate on Tanzania’s economic growth. The study employed secondary time series data covering the period of 1987 to 2024, and the data were sourced from Bank of Tanzania, IMF and UNCTAD. In analyzing the causal relationship between FDI and economic growth, Auto-Regressive Distributed Lags (ARDL) estimation technique and Wald test granger causality was employed to identify the direction of causality between the two. The findings from ARDL estimation revealed that FDI, exchange rates and trade openness have a significant positive impact on the economic growth in the long run. It was also revealed that interest rates have a significant negative impact on economic growth in the long run. The study recommends that the government of Tanzania should improve FDI enhancing policies so as to attract more FDI inflows and increase economic growth. It is also recommended that the government should improve its international trade policies so as to promote more international trade and facilitate economic growth. Lastly, the study recommends that the government should strengthen the monetary policies so as to control the interest rates and boost country’s economic growth.