Investigating the Transmission Channels of the Global Financial Crisis to Tanzania

Maduhu Kazi

doi:10.4236/me.2014.54032

Abstract

This paper uses a series of Tanzania’s annual real GDP data for the period of 1970 to 2010, to investigate the transmission channels through which the ongoing financial crisis is affecting the economy. The channels which were examined are foreign aid, export earnings and Foreign Direct Investment (FDI). The paper also investigated how an increase in government expenditure, as popularly known as the stimulus package can boost the Tanzanian economy. Foreign aid was found to possess the positive sign as was expected and is statistically significant. Therefore there is a possibility that the ongoing global crisis has impacted the economy via a reduced foreign aid which is associated with recession in the developed economies; aid donors in this context. It was also found that the global financial crisis had a significant effect on Tanzania’s economic growth through other transmission channels namely FDI and exports. However, all the coefficients were small, indicating the little impact of the global financial crisis to Tanzania’s economy.

Highlights

The world witnessed a severe global wide financial crisis beginning in mid-2007 (IMF, [1] [2])
The Dynamic Ordinary Least Squares (DOLS) formulation was first proposed by Kao and Chiang [27] who examined the asymptotic distributions for Ordinary Least Squares (OLS), Fully Modified OLS (FMOLS), and Dynamic OLS (DOLS) estimators7
I turn to the Dynamic Ordinary Least Squares (DOLS) model

Summary

Introduction

The world witnessed a severe global wide financial crisis beginning in mid-2007 (IMF, [1] [2]). As with major international crises such as those of the 1990’s in emerging and relatively developed countries such as the 1994 Mexico peso crisis, the 1997 East Asian crisis, the 1998 Russian financial crisis and the 1999 Brazilian real devaluation, most crises have a common characteristic that they tend to have profound effects on other countries. From this point of view I observe that financial crises portray a contagious characteristic because they tend to spread quickly in their effects from the initial epicenters (AfDB, [3] and Wakeman et al, [4]).

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Conclusion