The Effects of Foreign Direct Investment on Economic Growth (Gross Domestic Product) in Tanzania

Abstract

This study aims to analyse the effects of Foreign Direct Investment on Economic Growth (Gross Domestic Product) in Tanzania. The World Bank’s data on foreign direct investment and gross domestic product from 1988 to 2021 was employed in order to achieve the purpose of the study. The Vector Autoregressive Regression (VAR) Model was selected, in which a neoclassical growth model was applied within the implementation of this model. According to the findings of the research that was carried out, the Gross Domestic Product was primarily influenced by its prior values, which suggests that the economy is capable of some degree of self-sufficiency in terms of driving changes in the economy. According to the findings, foreign direct investment had a relatively minimal direct impact on gross domestic product, which suggests that other factors played a more significant role in influencing economic performance. There was no bidirectional causal relationship between gross domestic product and foreign direct investment; they both functioned independently of one another. It has been established that endogenous shocks have a significant role in driving changes in both GDP and FDI, which underscores the impact that internal forces have on the economic system. The importance of taking into account internal factors while conducting an analysis of economic growth has been brought to light as a result of these findings, which have contributed to a better understanding of the complex relationship that exists between GDP and FDI.