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.