Macroeconometric Analysis Of Economic Growth In Tanzania

Understanding the behavior and dynamics of investment and household consumption expenditure in a country is very important for economic growth and social development of an economy.The motivation for carrying out this study rest on the fact that,despite macroeconomic stability policies,an abundance of natural resources,Tanzania's economic structural changes have been not satisfactory.The unsatisfactory performance of economic growth in the country has profoundly been due to low savings –investment and consumption,which creates the dilemma between the levels of the country's investment and household consumptions that are needed for better economic growth and also maintaining sound social welfare.This study empirically analyzed economic growth,investment,and household consumption in Tanzania based on the Ramsey-Cass-Koopmans model.Specifically,this study aimed at determining the factors influencing consumption and investment,finding out the role that consumption and investment play in the economy,deriving the country's long-run economic growth model and identifying the factors influencing it,and lastly determining optimal resource allocation both in decentralized and centralized settings.The study employed quantitative in nature research design with descriptive support in which tables and figures are used to elaborate on the results and findings.Empirical regression models were specified to characterize the economy of Tanzania.The models estimated include economic growth model,investment model,and household consumption model.These regression models were estimated using Ordinary Least Squares(OLS)method.The study covered secondary annual time series data of 1970 – 2017 sourced from the Bank of Tanzania,World Bank,and KNOEMA.Data analysis was carried out using Eviews 9 statistical package computer software.However,before estimating regression models,pretest analyses were performed to check for data properties.Also,after estimating regression models,post-estimation(diagnostic)tests were performed to check for model robustness and whether the classical linear regression model assumptions are met.The pre-estimation results revealed no abnormalities in the dataset series used in this study.The pre-test analyses included graphical analysis,descriptive statistics,correlation matrix,and unit root tests.The co-integration results,also,indicated that all empirical models had a long-run equilibrium relationship among the variables involved.Estimated results showed that investment lagged one period,labor force lagged four periods,current government final consumption expenditure,and inflation lagged three periods are variables affecting current long-run growth in Tanzania.The main findings showed that the most significant factors that affect economic growth rate in Tanzania include investment,which seems to have more practical/economic effects followed by labor force and inflation.In a decentralized economy,empirical results indicated that current investment in Tanzania is influenced by GDP growth rate lagged three periods,household consumption expenditure lagged four periods,savings lagged two periods,interest rate lagged three periods,inflation rate lagged one period,and GDP per capita lagged two periods.However,only GDP growth rate seems to have the most significant impact on investment in Tanzania.Also,the GDP growth rate lagged one period,investment lagged one period,inflation rate lagged two periods,and current GDP per capita are the main factors influencing current household consumption expenditure in Tanzania.In this case,investment has the most significant impact followed by per capita GDP and Growth rate of GDP.On the other hand,results from centralized economy revealed that current investment in Tanzania is influenced by GDP growth rate lagged three periods,household consumption expenditure lagged four periods,savings lagged two periods,interest rate lagged three periods,inflation rate lagged one period,GDP per capita lagged two periods,government final consumption expenditure lagged two periods,current tax revenue,and current capital stock.Nevertheless,none of these variables seem to have the most significant impact implying that government activities in the economy were very minimal during the period of study.GDP growth rate lagged four periods,current savings and interest rate,GDP per capita lagged four periods,government final consumption expenditure lagged two periods,and tax revenue lagged two periods were the main factors influencing current household consumption in a centralized economy.In this case,only GDP growth rate and savings had the most significant impact.The main finding is that government final consumption expenditure and tax revenue,which represents government interference(social planner's problem)in the economy,had a shallow economic/practical effect on consumption,though the effect is significant.These empirical results reveal that the Tanzania government(through tax revenue and government final consumption expenditure)has no more significant influence on economic activities.The study recommends that investors should be given more priority when formulating policies to deal with economic growth in Tanzania.Public investment should be encouraged in areas that benefit society(social investment)and no private investment incentives.The government should create a conducive environment for private investment to operate in the country.Household consumption expenditure should also be encouraged and engaged in macroeconomic policies.In order to maintain high standards of household consumption in the country,then income fluctuations and stable spending should be considered when dealing with inflation expectation policies in the country.