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<p>Tanzania is one of the world’s poorest countries. But it has a lot to offer and in recent years both tourists and companies have realised this. This thesis focuses on the companies and takes a closer look at the growth performance and the inflow of Foreign Direct Investments (FDI) to Tanzania. By presenting a case on the cement industry in Tanzania the thesis also provide some insight in the mechanisms of FDI on a more practical level. The findings conclude that the FDI and growth have both increased extensively since the 1990’s, but I refrain from comments on the causality of this relationship. The economic reforms that the country underwent in the 1990’s are thought to have played a key role in the development of the country. From the case presented we draw the conclusion that a FDI can affect the value chain as well as the whole country in numerous ways.</p>

Tanzania is one of the world’s poorest countries. But it has a lot to offer and in recent years both tourists and companies have realised this. This thesis focuses on the companies and takes a closer look at the growth performance and the inflow of Foreign Direct Investments (FDI) to Tanzania. By presenting a case on the cement industry in Tanzania the thesis also provide some insight in the mechanisms of FDI on a more practical level. The findings conclude that the FDI and growth have both increased extensively since the 1990’s, but I refrain from comments on the causality of this relationship. The economic reforms that the country underwent in the 1990’s are thought to have played a key role in the development of the country. From the case presented we draw the conclusion that a FDI can affect the value chain as well as the whole country in numerous ways.

This thesis complements current studies by focusing on developed OECD countries as they are the major sources and recipients of world FDI and current studies relating to developed countries using aggregate country FDI data are limited. This study empirically tests the determinants of FDI inflows and outflows and their relationship with economic growth using 2SLS simultaneous equations model between 1981 and 2008 for a sample of 20 developed OECD countries. The empirical findings suggest that FDI inflows do not contribute to economic growth in the host country and economic growth positively affects FDI inflows. In addition, trade openness and flexible employment protection legislation in the host country attract FDI inflows. In terms of FDI outflows, the results show that FDI outflows reduce economic growth in the home country, while economic growth in the home country increases FDI outflows. Moreover, high past level of outward FDI stock, trade openness, low labour cost and currency depreciation in the home country provide incentives for domestic firms to invest abroad. Therefore, this study does not support offering special incentives to foreign investors to attract FDI inflows or offering promotional policies to domestic firms to encourage FDI outflows. Instead, government should provide incentives for domestic investment and other sound policies to increase economic growth, which in itself provides a good environment to attract FDI inflows and to encourage FDI outflows. Keywords: FDI inflows, FDI outflows, two stage least squares simultaneous equations, economic growth, labour market flexibility.