EFFECT OF FOREIGN AID ON DOMESTIC SAVINGS IN TANZANIA

Abstract

This study aimed to investigate the relevance of the classical view that foreign aid complements domestic savings, using Tanzania’s time series data from 1966 to 2023. The empirical investigation was based on the Autoregressive Distributed Lag (ARDL) bounds cointegration technique. The results show that the long-run effect of aid on domestic savings is positive, whereas it is negative in the short run. Additionally, the results indicate a positive but statistically insignificant effect of government regimes on the economy's openness during the sample period. The study's findings underscore the long-term significance of aid and economic openness in Tanzania's development strategy. The importance of macroeconomic stability in both the short and long run periods is also emphasized by the findings.