Investigating the Transmission Channels of the Global Financial Crisis to Tanzania

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.