Abstract
Most studies employ a panel approach to assess the relationship between Foreign Direct Investment (FDI) and human development indicators (HDI) which implies that single country-focused studies on the subject are still sparse. Moreover, it is important to examine the relationship from an individual or single country perspective because countries differ greatly in their characteristics, data availability, and economic policies. There have been numerous efforts in Tanzania to assess the effect of FDI on economic growth. However, the previous literature has neglected to assess the effect of FDI on human development. To date, there is no single country research on the relationship between FDI and human development in Tanzania. This dissertation examines the impact of FDI on human development in Tanzania for the period 1970 to2019in order to add to the sparse literature on the subject from a single country perspective. The focus of this study is on the three HDI which are health, education and standard of living. The analysis was done by using three models (equations) which are health model, education model and standard of living model. The study uses the autoregressive distributed lag (ARDL) bounds test approach developed by Pesaran et al. (2001) to test for cointegration among the variables and to establish whether there is a long-run relationship between FDI and HDI. The findings reveal that there is a long-run relationship between FDI and HDI in Tanzania. Specifically, FDI is positively related to education and standard of living but negatively related to health in the long run. In the short run, the study finds that FDI is positively related to health, education and standard of living but the result was insignificant for health and standard of living. The study concludes that the impact of FDI on improving human development is sensitive to the human development indices used. The main substantive result in this study is that inward FDI has a positive impact on human development in Tanzania. Therefore, to achieve the best results policymakers need to be aware of and consider the pros and cons of FDI in several aspects of human development. The government of Tanzania should adopt policies that reduce red tape and the cost of doing business to increase the inflow of FDI.
Keywords: Foreign Direct Investment, Human Development Index, ARDL, Tanzania.