An empirical analysis of the relationship between FDI and economic growth in Tanzania

Figures & data

Figure 1. Graphical presentation of the data set.

Notes: GDP = gross domestic product; FDI = foreign direct investment; FD = financial development; and TRD = trade

Source: Drawn by the authors using EViews® 12

Table 1. Descriptive statistics of the variables

Variables	GDP	FDI	FD	TRD
Mean	5.205109	2.573369	9.605513	42.11872
Standard deviation	2.028551	1.510036	3.950234	12.07433
Kurtosis	2.579493	2.342099	1.801994	2.211177
Skewness	−0.842405	0.169309	−0.553694	0.317164
Observation	31	31	31	31

Note: GDP = gross domestic product; FDI = foreign direct investment; FD = financial development; and TRD = trade.

Source: Authors’ computation via EViews® 12.

Table 2. Vector autoregressive lag order selection based on Akaike information criterion

Endogenous	Lag	LogL	LR	FPE	AIC	SC	HQ
GDP	1	−47.88114	23.50753*	1.826535*	3.440078*	3.534375*	3.469611*
	2	−47.84415	0.066330	1.952984	3.506493	3.647937	3.550791
FDI	1	−45.29484	9.191262*	1.528146	3.261713	3.356009	3.291245
	2	−43.34927	3.488608	1.432422*	3.196501*	3.337946*	3.240800*
FD	1	−51.34030	53.66946*	2.318646	3.678641	3.772937*	3.708174
	2	−50.10857	2.208604	2.283082*	3.662660*	3.804105	3.706959*
TRD	1	−93.65947	37.22190	42.92898	6.597205	6.691501	6.626737
	2	−89.53947	7.387221*	34.63665	6.382047*	6.523491*	6.426345*

Note: * indicates lag order selected by the criterion at the 5% significance level. LR = sequential modified LR test statistic; FPE = final prediction error; AIC = Akaike information criterion; SC = Schwarz information criterion; HQ = Hannan-Quinn information criterion. GDP = gross domestic product, FDI = foreign domestic investment, and TRD = trade.

Source: Authors’ computation via EViews® 12

Table 3. Results of unit root (stationarity) status

Variables tested	Optimal lag (AIC)	Augmented Dickey–Fuller (ADF) test		Phillips–Perron (PP) test		Order of integration	Stationarity status
		t-statistic	p-Value	t-statistic	p-Value
GDP	1	−6.080365	0.0001*	−6.643668	0.0000*	I(1)	Stationary
FDI	2	−6.164722	0.0001*	−12.04908	0.0000*	I(1)	Stationary
FD	2	−4.446852	0.0073*	−5.529649	0.0060*	I(1)	Stationary
TRD	2	−3.446061	0.0173**	−3.533777	0.0141**	I(1)	Stationary

Note: AIC = Akaike information criterion; GDP = gross domestic product; FDI = foreign direct investment; FD = financial development; and TRD = trade.

*, **, and *** indicate significance at the 1%, 5%, and 10% levels, respectively. The truncation lag in the PP test was based on bandwidth 3 (Newey—West) using Bartlett kernel Source: Authors’ computation via EViews® 12.

Table 4. ARDL bounds (F-test) test for cointegration

Dependent variable	Optimal lags (AIC)	Selected ARDL (model)	F-statistic	Bounds test results
FGDP (GDP/FDI, FD, TRD)	1	(1,1,0,0)	4.791101	Cointegration
FFDI (FDI/GDP, FD, TRD)	2	(2,0,0,0)	1.745728	No cointegration
FFD (FD/FDI, GDP, TRD)	2	(1,2,0,2)	4.057942	Inconclusive
FTRD (TRD/FD, FDI, GDP)	2	(2,0,0,1)	2.617887	No cointegration
The upper-bound critical value is 4.66 at the 1% significance level
The lower-bound critical value is 3.65 at the 1% significance level

Notes: GDP = gross domestic product; FDI = foreign direct investment; FD = financial development; and TRD = trade.

Source: Authors’ computation via EViews® 12.

Table 5. Results for long-run estimates of the ARDL approach

Variable	Coefficient	t-statistic	Probability
C	2.781897	1.433520	0.1646
FDI	1.379937	3.452790	0.0021*
FD	−0.031956	0.217575	0.8296
TRD	−0.026260	−0.649586	0.5221

Notes: GDP = gross domestic product; FDI = foreign direct investment; FD = financial development; and TRD = trade. *, **, and *** indicate significance at the 1%, 5%, and 10% levels, respectively.

Source: Authors’ computation via EViews® 12.

Table 6. Results of the short-run dynamics and the error correction model (ECM)

Dependent variable	F-statistics (Wald test) (p-value)				Long-run ECT (−1) [p-value]
	D(GDP)	D(FDI)	D(FD)	D(TRD)
D(GDP)	-	7.227029 (0.0035)*	0.052089 (0.8214)	0.336452 (0.5673)	−0.609645 [0.0080]*
D(FDI)	1.950832 (0.1758)***	-	1.831722 (0.1891)***	1.552521 (0.2253)	-
D(FD)	0.048945 (0.8272)	3.149867 (0.0476)**	-	3.111938 (0.0494)**	-
D(TRD)	3.422130 (0.0508)**	0.826702 (0.3731)	5.475818 (0.0288)**	-	-

Notes: *, **, and *** indicate significance at the 1%, 5%, and 10% levels, respectively. ECT = error correction term; “D” denotes the first difference operator.

Source: Authors’ computation via EViews® 12

Figure 2. Model stability test CUSUM (Equation 5(5) $D{\left(GDP\right)}_t={\alpha }_0+\sum _{i=1}^P{{\alpha }_1}_{i}D{\left(GDP\right)}_t+\sum _{i=0}^{q^1}{{\alpha }_2}_{i}D{\left(FDI\right)}_t+\sum _{i=0}^{q^2}{{\alpha }_3}_{i}D{\left(FD\right)}_t+\sum _{i=0}^{q^3}{{\alpha }_4}_{i}D{\left(TRD\right)}_t+{\lambda }^1{\left(ECT01\right)}_t+{\mu }_{5t},$(5) ).

Note. CUSUM = cumulative sum.

Source: Authors’ computation via EViews® 12

Figure 3. Model stability test CUSUM of squares (Equation 5(5) $D{\left(GDP\right)}_t={\alpha }_0+\sum _{i=1}^P{{\alpha }_1}_{i}D{\left(GDP\right)}_t+\sum _{i=0}^{q^1}{{\alpha }_2}_{i}D{\left(FDI\right)}_t+\sum _{i=0}^{q^2}{{\alpha }_3}_{i}D{\left(FD\right)}_t+\sum _{i=0}^{q^3}{{\alpha }_4}_{i}D{\left(TRD\right)}_t+{\lambda }^1{\left(ECT01\right)}_t+{\mu }_{5t},$(5) ).

Note. CUSUM = cumulative sum.

Source: Authors’ computation via EViews® 12

Table 7. Test for serial correlation and heteroscedasticity

Breusch–Godfrey serial correlation LM test: Null hypothesis: No serial correlation at up to 2 lags

F-statistic 1.327702 Prob. F (2,22) 0.2855 Obs.* R-Squared 3.123320 Prob. Chi-Square (2) 0.2098

Heteroskedasticity test: Breusch–Pagan–Godfrey: Null hypothesis: Homoskedasticity

F-statistic 0.151109 Prob. F (4,24) 0.9607 Obs.* R-Squared 0.712420 Prob. Chi-Square (4) 0.9498

Note: Reject the null hypothesis if the probability of F-statistic ≤5% level of significance.

Source: Authors’ computation via EViews® 12.

Data availability statement

World Bank Group (2022), World Bank national accounts data, and OECD National Accounts data files are available online at https://data.worldbank.org/indicator/.