Foreign Direct Investment: A Catalyst for Economic Growth

The link between economic growth and human development has been a subject of rigorous empirical econometric work since the 1970s. Foreign Direct Investment (FDI), which is an important component of human development especially in modern regional and global economies, has been found to explain varying levels of return and economic growth.

Foreign Direct Investment is a major source of capital for most developed and developing countries. It is usually difficult for countries to generate capital through domestic savings and based on their domestic strengths and capacities alone. It is even more difficult to import up-to date technology from abroad taking into consideration issues of transportation and the technical expertise required for operation,

Tanzania has made considerable efforts over past three decade to improve investment climate with the vision to attract more FDI, whereby to this extent major policy and structural reforms were carried out since mid of 1980s in order to transform/improve business and investment environment in the country. One of the efforts that have been done is that Tanzania has been able to set up several autonomous government institutions and authorities to attract FDI inflows in the country. For instance in 1990s the government set up special authority Investment Promotion Centre (IPC), although after seven years the authority failed to attract FDI to the level that was predicted. Despite the challenges, but the country had made some improvements through IPC with respect to the development of private sectors in which the annual FDI value reached about USD 148.50 million. Due to the failure of IPC to attract more FDI into the country then the government decided to transform the authority into more aggressive institution so that it can attract more FDIs inflow into the

Furthermore, the relative importance of FDI determinants may change over time, for instance due to globalization. Factors that have been brought out as determinants of FDI in developing countries include political and macroeconomic stability, infrastructure quality, governance, regulatory environment openness to trade and investment promotion strategies (UNCTAD, 1998). However, it is important to note that even though these factors have been empirically proven to be FDI determinants, some determinants may apply to some regions but not others. For instance, on average, countries in Sub-Sahara Africa (SSA) receive less FDI than other regions by virtue of their geographical location (Asiedu, 2002). However, it is important to note that even when factors apply to a particular region, they may not be applicable to a specific country within that