Relationship Between Institutional Factors and Foreign Direct Investment Flows of Tanzania in East African Community

This paper informs of the extent which institutional factors influence Tanzania Foreign Direct Investment (FDI) inflows in the East African Community (EAC). It gives a comparative analysis of the institutional factors that influence Foreign Direct Investment of the states using the indicators from the World Development Indicators t from 2000 to 2018. The paper is built on the gravity model which was used as a framework to predict the relationship between the dependent and dependent variables. The analysis of the data obtained revealed that the rule of law and control of corruption, management of external debts, and Return on Investment (ROI) for both Tanzania and her trading partners in EAC had a positive effect on the Foreign Direct Investment inflows in Tanzania. Gross Fixed Capital Formation as a proxy for the Quality of Infrastructure in other EAC countries harms Foreign Direct Investment inflows to Tanzania; hence, improvement in infrastructure in EAC is critical to the performance for the EAC partners. Further, the Business Regulatory Environment and Return on Investment were found to be positively correlated with FDI inflows. Inflation harmed the FDI. The study thus underscored the importance of stable Business Environment for Tanzania to continue enjoying the lion share of FDI in EAC. Tanzania Foreign Direct Investment performance in EAC is highly correlated with institution and macroeconomic environment in other EAC countries; hence, there is a Hub-ad spoke relationship on FDI inflows in EAC. Therefore, Tanzania should continue pushing for regulatory and macroeconomic reform in other EAC countries to keep on enjoying the lion share of FDI inflows.