Foreign Aid and Economic Performance in Tanzania

This study examines the relationship between foreign aid inflows into Tanzania and some macroeconomic variables such as the real exchange rate, export performance, manufacturing production, and growth, and assesses the potential for the aid-induced Dutch disease in Tanzania. Using cointegration technique and an error-correction model, the study shows that aid inflows, increased openness of the economy and devaluation of the local currency caused real depreciation while increased government expenditure caused real appreciation. The finding that aid inflows caused real depreciation in Tanzania refutes the proposition that foreign aid has caused Dutch disease in the country. Tanzania may thus continue receiving aid and use it for productive investment to stimulate a positive supply response. Bibliogr.

Title: Foreign Aid and Economic Performance in Tanzania
Author: Nyoni, Timothy S.
Year: 1998
Periodical: World Development
Volume: 26
Issue: 7
Period: July
Pages: 1235-1240
Language: English
Geographic term: Tanzania
External link: https://doi.org/10.1016/S0305-750X(98)00047-3
Abstract: This study examines the relationship between foreign aid inflows into Tanzania and some macroeconomic variables such as the real exchange rate, export performance, manufacturing production, and growth, and assesses the potential for the aid-induced Dutch disease in Tanzania. Using cointegration technique and an error-correction model, the study shows that aid inflows, increased openness of the economy and devaluation of the local currency caused real depreciation while increased government expenditure caused real appreciation. The finding that aid inflows caused real depreciation in Tanzania refutes the proposition that foreign aid has caused Dutch disease in the country. Tanzania may thus continue receiving aid and use it for productive investment to stimulate a positive supply response. Bibliogr.