(An) empirical analysis of country risk and FDI in Tanzania

Abstract

The importance of inward Foreign Direct Investment (FDI) to countries' economies, the presence of fewer studies on FDI in developing countries and competitive incentives that are offered by host countries to Multinational Enterprises (MNEs) in attracting FDI necessitates the empirical investigation for Country Risk's effect on FDI inflows in Tanzania. Specifically, the lack of studies in Tanzania and the shift in economic policies from closed to open economy system instigate the scrutiny of the influence of FDI inflows to the country. Using data from1983 to 2015, the study explores the impact of Country Risk in general to FDI inflows and uniquely analyse how individual components of Country Risk

Political Risk, Financial Risk and Economic risk, affect inward FDI to Tanzania. By employing Vector Error Correction Model (VECM), the study finds that there is a long-run equilibrium that is established between country risk and FDI inflows. The analysis of individual components of Country risk as set out by ICGR reveals the presence of equilibrium in the long run between country risk components and FDI inflows. On the short-run perspective only financial risk is found to influence international investment