Financial determinants of economic growth: The Tanzanian perspective

This study investigated the influence of key financial variables on Tanzania's economic growth from 1990 to 2022, using time series data from the World Bank Development Indicators. The analysis examined the relationship between GDP growth and four financial variables: exchange rate, inflation, trade openness, and domestic credit to the private sector. After applying the Augmented Dickey-Fuller test, all variables became stationary after first differencing. The Johansen cointegration test identified four cointegrating relationships, and a Vector Error Correction Model captured both short-term dynamics and long-term equilibrium. Results indicated that exchange rate depreciation and inflation negatively affected GDP growth, while trade openness had a positive impact. Domestic credit’s effect was weak and insignificant. Based on these findings, it is recommended that the government and central bank should implement policies focusing on stabilizing the exchange rate, controlling inflation, improving financial sector efficiency, and enhancing trade integration for sustainable economic growth.