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The Effect of Public Debt on Private Investment in Tanzania

Author

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  • Mabula, Salyungu
  • Mutasa, Felician

Abstract

This study explores the effect of public debt on private investment in Tanzania. Secondary data for the period of 1970-2016 were collected from National Bureau of Statistics (Tanzania), Bank of Tanzania, World Bank, and scholarly journals. An Autoregressive Distributed Lag (ARDL) bound test to cointegration is used in this study. Results suggest a significant evidence of nonlinear long run and short run relationship between external debt and private investment. However, Granger causality test suggests that this relationship is rather a co-movement than causal. At 5% level of significance, there is no significant evidence of long run and short run relationship between domestic debt and debt service on one hand, and private investment on the other hand. However, the combined effect of domestic and external debt on private investment is statistically significant both in long run and short run. The study recommends the government to adopt strict policies on project implementations to ensure positive returns of borrowed funds and closely monitoring of public debt, particularly external debt on which private investment is more responsive than domestic debt and debt service, despite its sustainability at present.

Suggested Citation

  • Mabula, Salyungu & Mutasa, Felician, 2019. "The Effect of Public Debt on Private Investment in Tanzania," African Journal of Economic Review, African Journal of Economic Review, vol. 7(1), January.
    • Handle: RePEc:ags:afjecr:285002
    DOI: 10.22004/ag.econ.285002
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    Citations

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    Cited by:

    1. Umaima Arif & Maryam Latif & Asma Arif, 2024. "Assessing the triple deficit hypothesis in G-7 and D-8 countries: an evidence from heterogeneous panel methods," International Journal of Economic Policy Studies, Springer, vol. 18(2), pages 497-527, August.
    2. Fisayo Fagbemi & Opeoluwa A. Adeosun, 2020. "Public Debt-Investment Nexus: the Significance of Investment-Generation Policy in West Africa," Working Papers 20/083, European Xtramile Centre of African Studies (EXCAS).
    3. Dinci J. Penzin & Afees Salisu & Benedict N.Akanegbu, 2022. "A Note On Public Debt-Private Investment Nexus In Emerging Economies," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 25(1), pages 25-36, June.
    4. Fisayo Fagbemi & Opeoluwa A. Adeosun, 2020. "Public Debt-Investment Nexus: the Significance of Investment-Generation Policy in West Africa," Working Papers of the African Governance and Development Institute. 20/083, African Governance and Development Institute..
    5. Fisayo Fagbemi & Opeoluwa A. Adeosun, 2020. "Public Debt-Investment Nexus: the Significance of Investment-Generation Policy in West Africa," Research Africa Network Working Papers 20/083, Research Africa Network (RAN).
    6. Obaike John Ojeka & Tajudeen Egbetunde & Gideon Oseibibi Okoduwa & Aisha Omobolanle Ojeyode & Mumuni Jimoh & Gideon Oladele Ogunbowale, 2024. "Moderating effect of institutional quality on the influence of debt on investment in sub-Saharan Africa," Future Business Journal, Springer, vol. 10(1), pages 1-17, December.
    7. Ngasamiaku, Wilhelm M. & Ngong'ho, Sende, 2022. "Macroeconomic Determinants of Public Debt in Tanzania: Empirical Evidence and lessons for Post COVID-19 Recovery," African Journal of Economic Review, African Journal of Economic Review, vol. 10(5), December.

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