The Contribution Of Foreign Direct Investment To Poverty Reduction In Tanzania

ABSTRACT

Despite the vital role of Foreign Direct Investment (FDI) in the economic development of the least developed countries like Tanzania, yet there are some socio-economic and development challenges associated with lack of basic life-sustaining needs (health, shelter, food and protection), poor standard of living, low productivity and lower range of socio-economic choices. The study aimed at examining the contribution of FDI to poverty reduction in Tanzania from 1988 - 2018. The general objective of this study was to analyze the contribution of FDI to poverty reduction in Tanzania. Specifically, the study intended to examine the relationship that exist between FDI inflows and poverty levels in Tanzania; To measure the impact of FDI on poverty levels in Tanzania as well as to recommend some policies for improving the contribution of FDI on poverty reduction in Tanzania. The collected annual time series data were based on both internal and external secondary sources such as the TIC, BOT, NBS, IMF, WB and UNCTAD. The results for Johansen test for cointegration showed an existence of a long run relationship between variables and there was a co-integration of three equations. Meanwhile, the results from Augmented Dickey-fuller test implied a state of stationary data used after the first differencing. In this study Real per capita Gross domestic product (RPGDP) was used as a proxy for poverty levels while inflows of FDI were used as a proxy for the rate of FDI. The results of the study revealed that FDI inflows have a significant impact on poverty reduction in Tanzania. The study recommends that policy makers in collaboration with the Government have to implement conducive and investment’s friendly policies as well as initiating necessary policy reforms so as to cater for the challenges associated with investment sector in Tanzania which normally hamper the growth and development of the FDI.