The Impact of Foreign Direct Investment on Economic Growth in Tanzania

This study examines the impact of foreign direct investment (FDI) on economic growth and employment in Tanzania. Using time series analysis and Theil-Sen robust regression, the research explores the dynamic relationships between FDI, GDP growth rate, and employment rate. The time series analysis revealed that the FDI data for Tanzania required second-order differencing to achieve stationarity, indicating a complex trend structure. An ARIMA (1, 2, 1) model was then fitted to the data, showing statistically significant autoregressive and moving average components. The Theil-Sen regression analysis uncovered two key findings. First, there was a strong positive relationship between FDI and GDP growth rate, with a slope coefficient of 4.04. This suggests that increased foreign investment is associated with higher economic expansion in Tanzania. Second, the analysis unexpectedly revealed a negative relationship between FDI and employment rate, with a slope coefficient of -1.69. This implies that the nature of FDI in Tanzania may be more capital-intensive than labor-intensive, or that FDI is displacing local businesses and employment. The statistical significance of these relationships, as indicated by Kendall's Tau correlation coefficients and p-values, emphasizes the importance of these findings. The study recommends that Tanzania continues to promote FDI to drive economic growth, while also investigating the employment impact and implementing policies to balance the benefits and drawbacks of foreign investment. Regularly updating the analysis can help inform evidence-based policymaking and monitor the evolving dynamics between FDI and Tanzania's economic development.