article · Cogent Economics & Finance
A sixty-year analysis examines the influence of foreign direct investment on the industrialisation trajectory of Tanzania between 1960 and 2020, alongside five-year projections up to 2025. Utilising time series models, specifically Vector Autoregressive and Error Correction Models with official national banking and statistics data, the research assesses dynamic economic shifts. The analysis demonstrates that foreign direct investment plays a vital role in both short-term and long-term industrial progress, whereas factors such as exchange rates primarily exert short-term effects. Projections point to an initial decline in both foreign direct investment and industrial growth between 2020 and 2022, succeeded by a notable upturn from 2022 to 2025. Ultimately, capital accumulation from international investment acts as a fundamental catalyst for moving agriculture-dependent economies into global value chains and securing sustained industrialisation.
Many developing nations face substantial obstacles when attempting to transition from agricultural dependence to industrialised production. Understanding the empirical relationship and predictive trends of foreign direct investment provides policymakers, development agencies, and economic planners with evidence to better anticipate cyclical downturns, stabilise foreign capital inflows, and advance national development goals.
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Purpose This paper aims to deepen understanding and knowledge regarding the impact of foreign direct investment (FDI) on the industrialization process. Many developing countries aspire to shift from agriculture-centric economies to achieve sustainable development through industrialization. Realizing this goal, however, has been challenging, prompting an examination of the sixty-year trends and effects of FDI on Tanzania’s industrialization trajectory.Methodology This study employs a comprehensive approach utilizing time series models, specifically the Vector Autoregressive (VAR) model and the Error Correction Model (ECM), to analyze the dynamic influence of FDI on industrialization. By forecasting the five-year trajectory of industrial growth and FDI inflows using data from the Bank of Tanzania and the National Bureau of Statistics spanning 1960 to 2020, this methodological framework aims to provide a nuanced understanding of the FDI-industrialization relationship, contributing valuable insights to the economic development discourse.Findings The study’s results highlight the significant role of FDI in shaping both short- and long-term industrial progress, which is critical to advancing Tanzania’s industrialization goals. Conversely, factors like exchange rates predominantly impact the short-term industrial landscape. Forecasts from the analysis indicate a projected decline in both FDI and industrialization from 2020 to 2022, followed by a notable upturn from 2022 to 2025. This underscores FDI as a key driver for integrating agriculture-based economies into global value chains, facilitating economic upgrading through capital accumulation—a fundamental catalyst for sustained industrialization.
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DOI: 10.1080/23322039.2024.2376947
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