Foreign direct investment and the agriculture sector performance in Tanzania: an autoregressive distributed lag approach

Abstract

Tanzania’s economy heavily relies on agriculture, employing a large portion of the population, yet the sector still requires substantial funding. This study investigates the impact of Foreign Direct Investment (FDI) and other key factors on Tanzania’s agricultural sector from 1988 to 2022, using a quantitative research design and the Cobb-Douglas production function framework. The Autoregressive Distributed Lag (ARDL) model was employed to analyze the relationship between agricultural value added, FDI inflows, trade openness, infrastructure, and technology. The findings reveal that while FDI has a positive effect on agricultural value added, its impact is statistically insignificant, indicating that FDI’s scale and alignment with local agricultural needs are inadequate for significant growth. Conversely, trade openness and technological advancements positively impact agricultural performance, highlighting the need for policies that encourage trade liberalization and technology adoption. The study also finds a negative impact of infrastructure on agriculture, possibly due to misallocation of resources or poor-quality infrastructure. Other factors like Gross Fixed Capital Formation, Secondary School Enrollment, Inflation, and Natural Resource Rent show insignificant effects. The study concludes by advocating for strategic policies to better align investments with the agricultural sector’s specific needs for enhanced productivity and sustainable growth.