Investigation into the Nexus Between External Debt and Economic Growth in Tanzania, 1980-2023

Gabriel, Shalom and Ndanshau, Michael O.A. (2026): Investigation into the Nexus Between External Debt and Economic Growth in Tanzania, 1980-2023.

Abstract

The primary objective of this study was to empirically establish the nature of the relationship between external debt and economic growth in Tanzania, both in the short run and long run. The ARDL bounds test and the error correction model (ECM) were applied to annual time-series data for the period from 1980 to 2023. Both ARDL and ECM econometric results revealed a long-run equilibrium relationship among economic growth, external debt, and some covariates relevant to Tanzania. The results revealed a less-than-proportional negative effect of a unit change in external debt on economic growth in the long run, but a significant positive effect in the short run. The finding emphasizes the importance of prudent fiscal policy as a prerequisite for effective debt management to achieve sustainable and inclusive economic growth and development. This study may benefit from a follow-up study on threshold debt, domestic debt, and debt servicing in relation to economic growth in Tanzania.

• Item Type: MPRA Paper
• Language: English
• Keywords: External debt, economic growth, ARDL model, Tanzania
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O55 - Africa

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