BRIDGING BORDERS, NOURISHING NATIONS: THE IMPACT OF FOREIGN DIRECT INVESTMENT ON TANZANIA'S CEREAL YIELD

Abstract

Scholars have shown Foreign Direct Investment (FDI) to play a vital role in enhancing productivity of resources. However, the existing literature is mixed on the effects of FDI particularly in agriculture. This paper examines the effects of agricultural FDI inflows on aggregate cereal yield in Tanzania. World Bank World Development indicators data (1970 – 2016) was used. The bounds test was used to examine the existence of a long-run relationship between FDI and cereal yield, while Autoregressive Distributed lag (ARDL) and Vector error correction model (VECM) were used to determine the existence of short-run and long-run causality between the variables, respectively. Findings show that there is a short-run relationship between FDI and cereal yield in Tanzania. In the long run, when FDI inflow increases by 1%, cereal yield increases marginally by about 0.07% (p<0.05). Thus, long-term investments coupled with increased FDI absorptive capacity, are crucial for improving Tanzania's cereal yield.

Keywords

• effects
• foreign direct investment
• cereal yield
• tanzania
• granger causality