THE NEXUS BETWEEN FOREIGN DIRECT INVESTMENT (FDI) AND MANUFACTURED EXPORT PERFORMANCE IN TANZANIA: AN AUTOREGRESSIVE DISTRIBUTED LAG (ARDL) APPROACH

Abstract

This paper examines the nexus between Foreign Direct Investment (FDI) and Manufactured Export Performance in Tanzania using An Autoregressive Distributed Lag (ARDL) for the period of 1980-2015. Real manufactured exports were used to proxy manufactured export performance. The findings show the existence of a positive and significant relationship between real manufactured exports and lagged FDI both in the short run and long run. The estimated error correction coefficient is negative and significant at one percent level. This confirms that all the variables (Real Manufactured Exports, FDI, Openness, and Real Effective Exchange Rate) are co-integrated and the speed of adjustment towards the long run equilibrium is at 78% annually. This suggests that FDI is one of the determinants of manufactured export performance in Tanzania. Thus, to stimulate more manufactured exports, Tanzania needs to attract FDIs that target the export sector along with increasing trade openness in a bid to build a competitive and sustainable value added manufacturing sector.