Effect of Gross Capital Formation on the Economic Growth in Tanzania: A Vector Error Correction Model Analysis

Abstract

The goal of this research was to investigate the influence of gross capital formation on economic growth in Tanzania. Neoclassical Growth Model was used in this study. The quantitative research approach was used in this study. This study adopted a longitudinal research design, while a documentary review was employed to get secondary data from specific sites. The analysis relied on secondary data on private and public investment. Following the determination of the model's assumptions, a Vector Error Correction Model (VECM) was used. Because the data were presented in the form of a time series, stationarity was investigated. This was followed by a unit root test, then a cointegration test. Consideration is given to validity, reliability, and ethical considerations. The study revealed that there is positive association between gross capital formation and economic growth in Tanzania, also the study revealed that there is positive association between government consumption expenditure and economic growth in Tanzania. The study concluded that the economic growth is significantly impacted by gross capital formation. The study recommends that the government should focus more on the implementation and development of policies and strategies pertaining to the fees and charges paid to the government at all administrative levels. It also suggests that penalties be imposed in order to increase capital formation for private and public companies.