<abstract xmlns="http://www.w3.org/1999/xhtml">

<p>This paper examines the relationship between financial development and private sector investment in the post-financial sector liberalization episode in Tanzania. The proxies for financial development were the financial market depth index and financial institutions depth index. Applying Autoregressive Distributed Lag (ARDL) technique, the results show the nexus between financial development and private sector investment in Tanzania. We find that the financial market depth index has a positive and significant impact on private sector investment in the long run but not in the short run. This is linked to the underdevelopment of capital markets in Tanzania at present. Similarly, we find that the financial institution depth index positively and significantly impacts private sector investment in both the long and short run. The degree of openness of the economy recorded a positive and significant impact on private investment in both periods suggesting that it has played a critical role in the financial development and growth of the private sector in Tanzania. In contrast, we observe that the real exchange rate has recorded a negative and significant impact on private investment in the long and short run. This suggests that appreciation of the real exchange rate had a negative impact on private investment. We recommend increasing financial openness and reinforcing the financial regulatory reforms to widen and deepen the financial system that can effectively support the mobilization of short, medium, and long-term finance for private sector investment.</p>
</abstract>

This paper examines the relationship between financial development and private sector investment in the post-financial sector liberalization episode in Tanzania. The proxies for financial development were the financial market depth index and financial institutions depth index. Applying Autoregressive Distributed Lag (ARDL) technique, the results show the nexus between financial development and private sector investment in Tanzania. We find that the financial market depth index has a positive and significant impact on private sector investment in the long run but not in the short run. This is linked to the underdevelopment of capital markets in Tanzania at present. Similarly, we find that the financial institution depth index positively and significantly impacts private sector investment in both the long and short run. The degree of openness of the economy recorded a positive and significant impact on private investment in both periods suggesting that it has played a critical role in the financial development and growth of the private sector in Tanzania. In contrast, we observe that the real exchange rate has recorded a negative and significant impact on private investment in the long and short run. This suggests that appreciation of the real exchange rate had a negative impact on private investment. We recommend increasing financial openness and reinforcing the financial regulatory reforms to widen and deepen the financial system that can effectively support the mobilization of short, medium, and long-term finance for private sector investment.

Financial Development and Private Sector Investment in the Post-Financial Liberalization Era in Tanzania

Management Dynamics in the Knowledge Economy

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

This paper examines the relationship between financial development and private sector investment in the post-financial sector liberalization episode in...

Financial Development and Private Sector Investment in the Post-Financial Liberalization Era in Tanzania

Published Online: Jul 17, 2021

Page range: 241 - 256

Received: Dec 21, 2020

Accepted: May 22, 2021

DOI: https://doi.org/10.2478/mdke-2021-0017

Keywords
Financial development, private sector investment, financial liberalization, ARDL

© 2021 Francis Lwesya et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Financial Development and Private Sector Investment in the Post-Financial Liberalization Era in Tanzania

Published Online: Jul 17, 2021

Page range: 241 - 256

Received: Dec 21, 2020

Accepted: May 22, 2021

DOI: https://doi.org/10.2478/mdke-2021-0017

KeywordsFinancial development, private sector investment, financial liberalization, ARDL

© 2021 Francis Lwesya et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
Financial development, private sector investment, financial liberalization, ARDL