What are the Main Drivers Behind the Acceleration of Tanzania's Economic Growth Over the Past Three Decades?

Abstract

This paper examines the drivers of Tanzania’s economic growth from the period 1990 to 2020. It uses Autoregressive distributed lag (ARDL) model to control endogeneity among macroeconomic variables. The findings show that human capital (i.e. measured in terms of life expectancy), labour force, personal remittances, real exchange rates and access to finance (domestic credit to the private sector) are the main drivers of successful economic growth in Tanzania in the short and long term over the past decades. Moreover, foreign direct investment (FDI) has a significant and positive impact on the Tanzanian economy in the short run. The findings show that inflation rates and external debt have a negative impact on the economy. This suggests that inflation and external debt are detrimental to economic growth. Monetary interventions (interest rates and broad money) do not appear to have any impact on the short- and long-term performance of the economy. Therefore, the Tanzanian government should invest more in fiscal rather than monetary solutions for the economy. To promote long-term, sustainable economic growth in the country, we recommend policymakers to develop and/or strengthen appropriate policies focused on human capital (health), remittance, labour quality, competitive exchange rates and access to finance. Policy implications are also discussed.