Macroeconometric Analysis Of Economic Growth In Tanzania: Ramsey-Cass-Koopmans Approach

This study empirically analyzed economic growth, investment, and household consumption in Tanzania based on the Ramsey-Cass-Koopmans model. Specifically, this study aimed at determining the factors influencing consumption and investment, finding out the role that consumption and investment play in the economy, deriving the country’s long-run economic growth model and identifying the factors influencing it, and lastly determining optimal resource allocation both in decentralized and centralized settings. Empirical regression models were specified to characterize the economy of Tanzania. The models estimated include economic growth, investment, and household consumption. These regression models were estimated using OLS. The study covered secondary annual data of 1970 – 2017 and analysis was carried out using Eviews9. Results showed that the major significant factors affecting long-run economic growth rate in Tanzania include investment, labor force and inflation. In a decentralized economy, results indicated that current investment in Tanzania is influenced by GDP growth rate which seem to have the most significant impact. Also, investment, per capita GDP and Growth rate of GDP influence current household consumption expenditure in Tanzania in decentralized economy. On the other hand, results from centralized economy revealed that none of the variables involved seem to have the most significant impact in influencing current investment in Tanzania implying that government activities in the economy are very minimal though significant. GDP growth rate and savings are the factors influencing current household consumption in a centralized economy. The study recommends that investors should be given more priority when formulating policies to deal with economic growth in Tanzania. Public investment should be encouraged in areas that benefit society and no private investment incentives. The government should create a conducive environment for private investment to operate in the country. Household consumption expenditure should also be encouraged and engaged in macroeconomic policies. In order to maintain high standards of household consumption, income fluctuations and stable spending should be considered when dealing with inflation expectations in the country.