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Foreign aid and economic performance in Tanzania

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  • Timothy S. Nyoni

    (University of Dar—es-Salaam)

Abstract

This study examines the impact of foreign aid inflows to Tanzania on macroeconomic variables such as the real exchange rate, export performance, government expenditure, investment and growth. The main hypothesis of the study is that aid inflows cause real appreciation. To test this hypothesis, we used comtegration techniques and an error-correction model to estimate the long-run equilibrium and the short-run real exchange rate, respectively. The estimated model results suggest that foreign aid inflows, openness of the economy and devaluation of the local currency lead to depreciation of the real exchange rate, while government expenditure tends to appreciate the real exchange rate. The study recommends that the correct policy response to the influx of foreign aid is to direct the aid to domestic productive investment in order to induce a positive supply response. The government should also reduce its expenditure and enhance economic liberalization.

Suggested Citation

  • Timothy S. Nyoni, 1997. "Foreign aid and economic performance in Tanzania," Working Papers 61, African Economic Research Consortium, Research Department.
    • Handle: RePEc:aer:wpaper:61
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    Cited by:

    1. Louise Grenier & Andrew McKay & Oliver Morrissey, 1998. "Determinants of Exports and Investment of Manufacturing Firms in Tanzania," Discussion Papers 98/5, University of Nottingham, CREDIT.
    2. Michael Tribe, 2015. "International aid to Tanzania - with some comparisons from Ghana and Uganda," Working Papers 1503, University of Strathclyde Business School, Department of Economics.
    3. Maureen Were, 2001. "The Impact of External Debt on Economic Growth in Kenya: An Empirical Assessment," WIDER Working Paper Series DP2001-116, World Institute for Development Economic Research (UNU-WIDER).
    4. Tribe, Mihcael, 2015. "International Aid to Tanzania – with some comparisons from Ghana and Uganda," SIRE Discussion Papers 2015-55, Scottish Institute for Research in Economics (SIRE).
    5. Derrese Degefa, 2001. "The parallel foreign exchange market and macroeconomic performance in Ethiopia," Working Papers 107, African Economic Research Consortium, Research Department.
    6. Nyoni, Timothy S., 1998. "Foreign Aid and Economic Performance in Tanzania," World Development, Elsevier, vol. 26(7), pages 1235-1240, July.
    7. Tribe, Mihcael, 2015. "International Aid to Tanzania – with some comparisons from Ghana and Uganda," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-55, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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