Advanced Research in Economics and Business Strategy Journal
Volume 6, Numéro 1, Pages 253-270
2025-06-30

Mediating Role Of Exchange Rates In Fdi-growth Linkages: Ardl Evidence From Tanzania (1990–2023)



Authors : Mmasi Festo.r. . Mohamed Mohamed . Temba Jacqueline .

Abstract

Abstract The research explores how Foreign Direct Investment and exchange rate movements interact to influence economic growth in Tanzania over the period 1990–2023. Utilizing the Autoregressive Distributed Lag (ARDL) model, the research investigates both short-run effects and the potential for long-run cointegration among the variables. The study utilizes time-series data sourced from the World Bank, with all variables transformed into natural logarithms to ensure linearity and normal distribution. The results reveal that exchange rate fluctuations significantly impact GDP in the short run, with immediate depreciation exerting a negative effect, while lagged depreciation contributes positively, suggesting a delayed competitiveness effect. Conversely, FDI does not exhibit a statistically significant short-run impact on GDP, and the ARDL bounds test indicates the absence of a robust long-run equilibrium relationship among the variables. These findings imply that while exchange rate management is crucial for short-term macroeconomic stability, the effectiveness of FDI in promoting growth depends on the country’s absorptive capacity and structural readiness. The study recommends targeted policies aimed at stabilizing exchange rates, improving institutional quality, and aligning FDI with national development priorities to fully harness its growth-enhancing potential. Keywords: Foreign Direct Investment, Exchange Rate, Economic Growth, ARDL, Tanzania, Macroeconomic Stability, Time-Series Analysis

Keywords

Keywords: Foreign Direct Investment, Exchange Rate, Economic Growth, ARDL, Tanzania, Macroeconomic Stability, Time-Series Analysis

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