DETERMINANT OF FOREIGN DIRECT INVESTMENT IN TANZANIA

Abstract

This study examined the determinants of foreign direct investment (FDI) in Tanzania from 1991 to 2021 using time series data from the Tanzanian Central Bank. The Auto Regressive Distributed Lag (ARDL) co-integration test established long-run relationships, while the Error Correction Model (ECM) estimated both long-run and short-run coefficients. The findings indicate that GDP, openness, exchange rate, and inflation significantly impact FDI. The 69% speed of adjustment suggests a quick recovery from short-term shocks. Long-run structural stability was observed in these 
variables' contributions. Policy implications highlight the need for the Tanzanian government to enhance GDP, promote openness, manage exchange rates, and control inflation to attract more FDI. While these factors explain 95% of FDI variations, additional variables could further optimize inflows, necessitating continuous policy refinement. 
Keywords: Autoregressive, Exchange rate, Foreign Direct Investment, Inflation rate, 
Trade openness. 
JEL Code: F21, G11, O16.