Foreign Aid And Economic Growth: The Case Of Tanzania

This study has examined the impact of foreign aid on economic growth in Tanzania. It was interested in the analysis of this relationship because the country receives a considerable amount of foreign aid but still experiences very low economic growth and high poverty levels. The period under study is from 1990 to 2004 and used data from the World Bank, World Development Indicators 2006 and the former Ministry of Planning, Economy and Empowerment (Tanzania). The analysis of the contribution of foreign aid to economic growth has combined other variables which are net national savings, export growth (annual percentage growth), and total debt service. Except the export growth, other variables were measured as % of Tanzania’s Gross National Income (GNI) for the period under study. Furthermore, aid was disaggregated in terms of government’s development or recurrent expenditures and their impact on GDP growth was analysed. The main findings are that foreign aid and total debt service have a negative impact on GDP growth for the case of Tanzania. On the other hand, export growth and net national savings have shown a positive impact on GDP growth as it was expected because they increase the country’s capacity to invest. Both government’s development and recurrent expenditures of foreign aid resources have shown a negative impact on GDP growth. This implies that the development expenditures undertaken were not enough or not productive enough to impact on GDP growth positively. The overall aid and aid for development expenditures have shown to have more negative impact in the 1990s than in the early 2000s.