Empirical Investigation of the Effect of Public Investment on Private Investment in Tanzanian Context

Abstract

This paper sought to investigate empirically the effect of public investment on private investments in Tanzania. The literature gives inconsistent empirical findings on whether public investment crowds-in or crowds-out private investment either in the short-run or in the long-run. The measures undertaken in Tanzania to raise public investment overtime had surely affected key economic indicators especially investment in the private sector. This provides a rationale for a study of this nature being designed to investigate the crowd-out hypothesis of public investment in Tanzanian context. Quantitative technique is being employed which involves uses of time series data. Using the Vector Error Correction Model approach, findings suggest that public investment significantly crowds-out private investment. On the other hand, Gross Domestic Product was found to have positive significant impact on private investment.  Based on this findings, it is  recommended that  the complementary developmental roles in public-private partnership, the government should emphasize  on developing and maintaining of infrastructural services, quality education system and research development, industrialization, good governance and institutional framework at the expense of any spending which are being driven politically with no economic valuation or justification.