The Impact of Government Expenditure on Industrial Sector Productivity in Tanzania

Abstract

This study examines the impact of government expenditure on industrial sector productivity in Tanzania. The analysis was based on secondary annual time series data. Using data from 1980 to 2011, the study employs the Auto Regressive Distributed Lag (ARDL) bounds testing approach cointegration to examine the existence of long-run relationships and the error correction model (ECM) for the short-run relationships. All variables involved are integrated of order one while the error correction model estimates indicate the existence of a long-run relationship between government expenditure and the industrial sector productivity. Granger causality pair-wise test was conducted in determining the relationship among the variables. Analytical results show the existence of positive causality; therefore, government expenditure has significant impact on the industrial sector productivity. From a policy point of view, the focus should be on the government to adopt fiscal policy instruments with significant impact on industrial sector productivity.