Recently, developing countries especially in Africa see the role of foreign direct investment (referred to as FDI henceforth) as a crucial to their economic development. Tanzania is a new entrant of FDI since it pursued command-based economy in late 1960’s and 1970’s before it transformed itself to market oriented economy in early 1980’s. After the extensive reforms made by the government, the private investment were highly encouraged from both domestic and foreign sources. This study attempts to examine the role of FDI to the economy development since 1980. The study also examine the role of FDI serving as a source for capital formation, international trade, employment generation, and transfer of skills and technology and it’s overall impact to the GDP growth. At the sectorial level, the study examines the contribution of FDI in the mining and banking to the economic growth.
This study reviews the number of existing literatures on the effects of FDI to the economic growth, the determinants of FDI and its motives as well as the empirical work underlying its role to the economic growth. This paper used secondary data by converging both qualitative and quantitative data. In order to validate the findings of the qualitative data, the study also used empirical analysis to measure the relationship between the FDI and GDP growth and the determinants of GDP growth. The findings of the study show that FDI has a significant role to the economic growth of Tanzania. The paper recommends that, Tanzania can attract more FDI by improving the skills of its human resources, offer more attractive policies and offer bigger markets by seeking reliable FTA partners.
