The Relevance of Remittances on Economic Growth in Tanzania

Abstract

Despite the increasing importance of remittances in total international capital flows, the relationship between remittances and economic growth has not been adequately addressed, especially in Tanzania. This article, therefore, explores the aggregate impact of remittances on economic growth from 1985 to 2017. The Autoregressive Distributed Lag Model is used for time series estimation. Employing the general to specific technique, the article reveals that remittances have a positive and significant effect on economic growth in the country. It also reveals that foreign direct investment and terms of trade have a robust and significant influence on economic growth. However, exchange rates happened to have a negative impact on economic growth in Tanzania. It is therefore being recommended that policy-makers should endorse initiatives to attract huge amounts of personal remittances in the country in order to continue achieving the positive long-run relationship between remittances and economic growth. Also, they should pay more attention to policies that help to engage the diaspora for the development of the country. In this regard, the government ought to establish innovative schemes to trap the diaspora's cash.