The Analysis of the Major Determinants of Foreign Direct Investment: Case of Tanzania

Abstract

This paper analyzes the determinants of foreign direct investment in Tanzania. In this paper the Ordinary least square (OLS) estimation technique has been used to analyze the relationship between foreign direct investment and its determinants with the help of the E-views 7.1 software. The result shows that the market size, infrastructure development and natural resources availability are the major determinants of foreign direct investment inflow to Tanzania. Therefore the main recommendations are: firstly Tanzania government need to make more effort in the expansion of the market that will attract more FDI ; secondly investing more on the infrastructure development hence encouraging more FDI to the country: Lastly the results found the natural resources availability to be significant but unexpectedly had negative sign contrary to our hypothesis which may imply that the inadequate of natural resources reduces FDI inflow to the country hence more exploration of natural resources is necessary to ensure its availability for example the new recent massive discovery of gas in the country might have a big impact on attracting FDI in the near future.

Keywords: Foreign direct investment (FDI), Ordinary Least Square (OLS), unit root, Natural resources Availability (NRA).