Journal article Open Access

Role of Human Development and Governance in Foreign Direct Investment in the Post Reform Era: The Case of Tanzania

Paudel, Ramesh

Along with Sub-Saharan Africa (SSA), Tanzania also went through “lost decades” and started reviving its growth in the early 2000s; partly because of a relatively outward looking trade policy started in the mid-1980s, and improved foreign direct investment (FDI) inflows that grew nearly six-fold over the past decade. The largest inflows of FDI in the recent years are either in sectors with comparative advantage, such as, natural resources and agriculture or where there is need for investment, and returns are high– for example, manufacturing sector. Either developed countries or developing countries from SSA are important source of FDI in Tanzania, which next may focus to attract more FDI from emerging economies such as China, India, and Malaysia as her neighbors have done. The estimation results obtained from Auto regressive distributed lag (ARDL) approach of cointegration for annual time series data for the period of 1988 to 2013 suggest that there is, for instance, a link between FDI and educations indicating better education achievements help absorb the benefits of FDI better. Other important determinant of FDI inflows, based on our dynamic model analysis are GDP growth and labor force growth. Contrary to the perceived view, Tanzania seems unable to take the advantage of trade reform on FDI inflows. The results also suggest the natural resources rent has a positive impact only in the short-run.

JEL Code: F2, F21, F23, F36
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