Does the House Hold Consumption Expenditure and Government Expenditure Influences the Economic Growth in Tanzania? Unrestricted Vector Autoregressive Analysis

Abstract

This study investigates the contribution of the house hold consumption expenditure and government expenditure on economic growth in Tanzania employing unrestricted vector autoregressive (URVAR) model. Unit root and cointegration analysis determined using Augmented Dicker Fuller (ADF) and Johansen cointegration tests. The findings show that all the variables are non-stationary at level and stationary at first difference as well as all variables are not cointegrated as such unrestricted vector autoregressive is inevitable in this paper. If the variables are cointegrated then the study would employ the vector error correction model (VECM). Also, Wald coefficient test conducted to determine jointly how these variables influences the economic growth in Tanzania. UNVAR model analysis in system of equation indicates that some variables have significant influence on economic growth that is house hold consumptions expenditure and government expenditure whereas other variables have no significant influence. Generally, in the first system of equation shows that jointly gross domestic product and house hold consumptions of the previous year’s influences the gross domestic product in current year while jointly government expenditures in previous years have on influence on economic growth in current year in Tanzania. In the second system of equation of UNVAR finds only jointly gross domestic product of the previous year’s influences the house hold consumption while other variables jointly are not influencing house hold consumptions in Tanzania. In the third system of equation of UNVAR analysis all the variables jointly influence the government expenditures in current year in Tanzania. Therefore, the empirical results suggest the deliberately government efforts to support these variables in order to boost the economic growth in Tanzania.