Determinants of FDI in Tanzania Based on Gravity Model Results

Marcin Salamaga; Raphael Erineus Haule

doi:10.2478/foli-2026-0011

.blurhash-client-img { display: none !important; }

Determinants of FDI in Tanzania Based on Gravity Model Results

Folia Oeconomica Stetinensia

Volume 26 (2026): Issue 1 (June 2026)

By: Marcin Salamaga and Raphael Erineus Haule

Open Access

|Jun 2026

Abstract

Research background

Foreign direct investment (FDI) is an important factor supporting the development of Tanzania’s economy. Foreign capital in Tanzania is crucial primarily for the development of transport, telecommunications and energy infrastructure. The factors attracting foreign investors and the factors limiting the inflow of capital are not fully recognized, and research in this area requires updating.

Purpose

Identification of factors favoring the inflow of FDI to Tanzania and factors that hinder this inflow.

Research methodology

Gravity model for FDI in Tanzania estimated for panel data using FE and RE estimators.

Results

Tanzania’s GDP and imports stimulate the inflow of FDI, while exports and the distance between the host country and source country limit the inflow of FDI. The common border, common language and historical colonial ties between Tanzania and the investor countries did not significantly affect FDI in this country.

Novelty

Updating research showing the impact of macroeconomic variables on the inflow of FDI to Tanzania using the gravity model, formulating current recommendations for decision-makers responsible for the country’s economic development.

References

Anderson, J.E. (1979). A theoretical foundation for the gravity equation. American Economic Review, 69(1), 106–116. DOI: 10.1177/000841747904600316.
Search in Google Scholar Back to article
Asiedu, E. (2002). On the determinants of foreign direct investment to developing countries: is Africa different? World development, 30(1), 107-119, DOI: 10.1016/S0305-750X(01)00100-0.
Search in Google Scholar Back to article
Blomström, M., Kokko, A., Mucchielli, J.L. (2003). The economics of foreign direct investment incentives. In: Foreign direct investment in the real and financial sector of industrial countries (pp. 37–60). Springer Berlin Heidelberg.
Search in Google Scholar Back to article
Chakrabarti, A. (2001). The determinants of foreign direct investments: Sensitivity analyses of cross‐country regressions. Kyklos, 54(1), 89–114, DOI: 10.1111/1467-6435.00142.
Search in Google Scholar Back to article
Dunning, J.H. (1988). The eclectic paradigm of international production: a restatement and some possible extensions. Journal of International Business Studies, 19(1), 1–31, DOI: 10.1057/palgrave.jibs.8490372.
Search in Google Scholar Back to article
Dauti, B. (2015). Determinants of foreign direct investment in transition economies, with special reference to Macedonia: Evidence from gravity model. South East European Journal of Economics and Business, 10(2), 7–28.
Search in Google Scholar Back to article
De Mello Jr, L.R. (1997). Foreign direct investment in developing countries and growth: A selective survey. The journal of development studies, 34(1), 1–34, DOI: 10.1080/00220389708422501.
Search in Google Scholar Back to article
Epaphra, M. (2016). Determinants of export performance in Tanzania. Journal of Economics Library, 3(3), 470–487, DOI: 10.1453/jel.v3i3.1015.
Search in Google Scholar Back to article
Hansen, H., Rand, J. (2006). On the causal links between FDI and growth in developing countries. The World Economy, 29(1), 21–41, DOI: 10.1111/j.1467-9701.2006.00756.x.
Search in Google Scholar Back to article
Head, K., Ries, J. (2008). FDI as an outcome of the market for corporate control: Theory and evidence. Journal of International Economics, 74(1), 2–20, DOI: DOI:10.1016/j.jinteco.2007.04.004.
Search in Google Scholar Back to article
Helpman, E. (1984). A simple theory of international trade with multinational corporations. Journal of Political Economy, 92(3), 451–471, DOI: 10.1086/261236.
Search in Google Scholar Back to article
Helpman, E., Melitz, M.J., Yeaple, S.R. (2004). Export versus FDI with heterogeneous firms. American Economic Review, 94(1), 300–316, DOI: 10.1257/000282804322970814.
Search in Google Scholar Back to article
Hemed, L.I., Githui, T., Mathenge, P. (2018). Factors Influencing Foreign Direct Investment in Tanzania. International Journal of Research in Management, Economics and Commerce, 8(3), 141–148.
Search in Google Scholar Back to article
Hermes, N., Lensink, R. (2003). Foreign direct investment, financial development and economic growth. The Journal of Development Studies, 40(1), 142–163, DOI: 10.1080/00220380412331293707.
Search in Google Scholar Back to article
James, S. (2009). Incentives and investments: Evidence and policy implications. Washington, USA, Investment Climate Advisory Services of the world Bank Group.
Search in Google Scholar Back to article
Johnson, A. (2006). FDI inflows to the transition economies in Eastern Europe: magnitude and determinants. The Royal Institute of Technology, CESIS (Centre for Excellence for Studies in Science in Innovation), Paper No 59.
Search in Google Scholar Back to article
Kis, K., Bihari, K. (2017). The impact of FDI, foreign aid and remittances on the East African Community’s intra-regional trade: A gravity model analysis. Im Business, 2(2), 41–66.
Search in Google Scholar Back to article
Kojima, K. (1973). A Macroeconomic Approach to Foreign Direct Investment. Hitotsubashi Journal of Economics, 14(1): 1–21, DOI: 10.15057/8008.
Search in Google Scholar Back to article
Kumar, N. (2002). Globalization and the quality of foreign direct investment. Oxford Univ Press.
Search in Google Scholar Back to article
Luhwago, W., Philip, D., Kadigi, R., Mgeni, C., Kangile, R. (2023). The Determinants and Competitiveness of Rice Export in Tanzania: A Vector Error Correction Model. East African Journal of Science, Technology and Innovation, 4(3).
Search in Google Scholar Back to article
Mahona, B.K., Mjema, G.D. (2014). Determinants of Tanzania and Kenya Trade in the East African Community: A Gravity Model Approach. Journal of Economics and Sustainable Development, 5(4), 13–23, DOI: 10.5539/ijef.v11n4p1.
Search in Google Scholar Back to article
Markusen, J.R., 2002. Multinational firms and the theory of international trade. Cambridge, MA: MIT Press.
Search in Google Scholar Back to article
Mdee, E.O., Aikaeli, J. (2023). The Impact of Taxation on Foreign Direct Investment (FDI) Inflows in Tanzania. London Journal of Research in Management and Business, 23(6), 27–42.
Search in Google Scholar Back to article
Mishra, B.R., Jena, P.K. (2019). Bilateral FDI flows in four major Asian economies: a gravity model analysis. Journal of Economic Studies, 46(1), 71–89, DOI: 10.1108/JES-07-2017-0169.
Search in Google Scholar Back to article
Mundell, R.A. (1957). International trade and factor mobility. The American Economic Review, 47(3), 321–335.
Search in Google Scholar Back to article
Nadine, A.A., Ashraf, S., Nagia, R. (2021). The impact of relative exchange rate volatility and other multidimensional determinants on FDI in Egypt. American Journal of Industrial and Business Management, 11(12), 1163–1197.
Search in Google Scholar Back to article
Oman, C. (ed.) (2000). Policy competition for foreign direct investment: A study of competition among governments to attract FDI. OECD Publishing.
Search in Google Scholar Back to article
Ozawa, T. (1992). Foreign direct investment and economic development. Transnational corporations, 1(1), 27–54.
Search in Google Scholar Back to article
Resmini, L. (2000). The determinants of foreign direct investment in the CEECs: new evidence from sectoral patterns. Economics of transition, 8(3), 665–689. DOI: 10.1111/1468-0351.00060.
Search in Google Scholar Back to article
Shun-Chiao, Ch. (2009). Horizontal and Vertical Intra-industry Trade and Firm’s Investment Strategies: Evidence from the IT Industry in the Asian, EU and US Markets. Global Economic Review, 38(1): 63–76, DOI: 10.1080/12265080802692696.
Search in Google Scholar Back to article
Sieng, L.W., Alimawi, M.Y., Baharin, R. (2020). Impact of macroeconomics variables on exports in Indonesia, Philippines, Malaysia and Thailand. Journal of Contemporary Issues and Thought, 10, 46–57. DOI: 10.37134/jcit.vol10.sp.5.2020.
Search in Google Scholar Back to article
Stöwhase, S. (2006). Tax-Rate Differentials and Sector Specific Foreign Direct Investment: Empirical Evidence from the EU. Mohr Siebeck, Tübingen, FinanzArchiv: Public Finance Analysis, 61(4), 535–558.
Search in Google Scholar Back to article
Sultana, M., Rahman, M.H., Zimon, G. (2024). The Impact of External Debt and Exchange Rate on Foreign Direct Investment in Emerging Investment Markets: New Evidence Using a Pmg-Ardl Panel Data Analysis. Cogent Economics & Finance, 12(1), 2362780. DOI: 10.1080/23322039.2024.2362780.
Search in Google Scholar Back to article
Tanzania Investment Report (2023). Foreign Private Investments, Bank of Tanzania. Retrieved from https://www.bot.go.tz/Publications/Filter/5.
Search in Google Scholar Back to article
Tinbergen, J. (1962). Shaping the World Economy: Suggestions for an International Economic Policy. New York: The Twentieth Century Fund.
Search in Google Scholar Back to article
Tsitouras, A., Mitrakos, P., Tsimpida, C., Vlachos, V., Bitzenis, A. (2020). An investigation into the causal links among FDI determinants: Empirical evidence from Greece. Journal of East-West Business, 26(1), 17–55.
Search in Google Scholar Back to article
Wells, L.T., Allen, N.J., Morisset, J., Pirnia, N. (2001). Using tax incentives to compete for foreign investment. FIAS Occasional Paper, 15.
Search in Google Scholar Back to article
Zee, H.H., Stotsky, J.G., Ley, E. (2002). Tax incentives for business investment: a primer for policy makers in developing countries. World development, 30(9), 1497–1516, DOI: 10.1016/S0305-750X(02)00050-5.
Search in Google Scholar Back to article
Zhang, K.H. (2001). Does foreign direct investment promote economic growth? Evidence from East Asia and Latin America. Contemporary economic policy, 19(2), 175–185, DOI: 10.1111/j.1465-7287.2001.tb00059.x.
Search in Google Scholar Back to article

Articles in this issue

DOI: https://doi.org/10.2478/foli-2026-0011 | Journal eISSN: 1898-0198 | Journal ISSN: 1730-4237

Journal RSS Feed

Language: English

Page range: 213 - 228

Submitted on: Jan 16, 2025

Accepted on: Apr 9, 2026

Published on: Jun 29, 2026

Published by: University of Szczecin

In partnership with: Paradigm Publishing Services

Keywords:

FDI,

gravity trade model,

export,

Tanzania

Related subjects:

Business and economics,

Political economics,

Political economics, other

© 2026 Marcin Salamaga, Raphael Erineus Haule, published by University of Szczecin
This work is licensed under the Creative Commons Attribution-ShareAlike 4.0 License.

Volume 26 (2026): Issue 1 (June 2026)