Title:
THE CAUSALITY EFFECTS OF MACROECONOMIC FACTORS ON ECONOMIC GROWTH IN TANZANIA

Authors:
Vicent Stanslaus and Gwahula Raphael

Abstract:
This study assessed the causal effects of macroeconomic factors of economic growth in Tanzania. The factors under study include GDP, inflation, money supply (M3) and government expenditure. The study was motivated by the Granger-causality method which unlike other methods on similar studies underscores the importance of multiple causations of economic variables over and above normal relationships modeling; it combines the four macro-economic variables in a multiple vausation modeling through Vector Auto Regressive (VAR) models. The study used STATA software to analyse the data. It also used VAR, Unit root test, OLS, multivariate co integration test and the Granger causality test. The main findings of the study reveal that inflation rate has a significant effect on the economic growth in Tanzania. This effect was shown to be negative, thus inflation has ill effects on the economic growth. Money supply has a significant effect on economic growth, this effect was shown to be declining, and as money supply declined so did economic growth decline. Government expenditures decline leads to economic growth increase. The effect is inversely proportional. This finding was as well statistically significant. The study was also able to statistically measure and establishes that inflation rate; money supply, government expenditure and economic growth granger cause each other as indicated in the analysis. All the results were statistically significant. The government through its financial and economic policy planning organs such as the central bank using monetary and fiscal policies need to take into account the effects and causes of each of these variables.