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The present study aimed to investigate the impact of foreign direct investment (FDI) inflows on the manufacturing sector's performance in developing countries, focusing on Tanzania. Using a non-experimental explanatory research design and a quantitative approach with time series data, the study aims to generalize the results to the entire population. A sample size of 32 annual observations from 1990 to 2021, sourced from international organizations, was employed. Data analysis involved multiple linear regression using the Ordinary Least Squares (OLS) method. Diagnostic tests addressed potential time series data issues, and STATA software facilitated econometric techniques. Findings indicate a significant positive correlation between FDI and manufacturing value added (MVA) in Tanzania. The ARDL bounds test established a long-term equilibrium relationship between FDI, MVA, GDP, and the inflation rate. Notably, a 1.961 unit increase in MVA corresponds to a unit rise in real GDP, with a 0.08 unit decrease linked to a unit increase in inflation. The error correction model shows a 0.66 percent adjustment from short-run to long-run equilibrium. Granger causality results suggest a bi-directional causal effect between MVA and FDI, with MVA causing FDI. Diagnostic tests confirm the model's stability, normality, and absence of serial correlation or heteroscedasticity. In conclusion, the study highlights FDI's positive role in propelling manufacturing sector growth in Tanzania, contributing to economic development and employment generation. Recommendations for Tanzanian policymakers include creating a conducive environment for FDI in the manufacturing sector, emphasizing policies to ease business operations, encourage technology transfer, and address inflationary pressures.
Mwakasungula et al. (Sat,) studied this question.