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Article
Author(s)
Peter Elias Bagumhe
Full-Text PDF XML 687 Views
DOI:10.17265/1537-1514/2020.05.003
Affiliation(s)
North West University, Potchef stroom Campus, South Africa
ABSTRACT
This paper informs of the
extent which institutional factors influence Tanzania Foreign Direct Investment
(FDI) inflows in the East African Community (EAC). It gives a comparative
analysis of the institutional factors that influence Foreign Direct Investment of
the states using the indicators from the World Development Indicators t from
2000 to 2018. The paper is built on the gravity model which was used as a
framework to predict the relationship between the dependent and dependent
variables. The analysis of the data obtained revealed that the rule of law and
control of corruption, management of external debts, and Return on Investment (ROI)
for both Tanzania and her trading partners in EAC had a positive effect on the
Foreign Direct Investment inflows in Tanzania. Gross Fixed Capital Formation as
a proxy for the Quality of Infrastructure in other EAC countries harms Foreign
Direct Investment inflows to Tanzania; hence, improvement in infrastructure in
EAC is critical to the performance for the EAC partners. Further, the Business
Regulatory Environment and Return on Investment were found to be positively
correlated with FDI inflows. Inflation harmed the FDI. The study thus
underscored the importance of stable Business Environment for Tanzania to
continue enjoying the lion share of FDI in EAC. Tanzania Foreign Direct
Investment performance in EAC is highly correlated with institution and
macroeconomic environment in other EAC countries; hence, there is a Hub-ad
spoke relationship on FDI inflows in EAC. Therefore, Tanzania should continue
pushing for regulatory and macroeconomic reform in other EAC countries to keep
on enjoying the lion share of FDI inflows.
KEYWORDS
Foreign Direct Investment, East African Community, institutional factors, domestic production, Preferential Trade Agreements (PTA)
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