Abstract
This study analyses the impact of Tanzania’s government spending priorities (1990–2023) on economic growth, focusing on four key sectors (public services, defence, health and education) constituting 89% of fiscal spending. Using an ARDL approach with diagnostic and cointegration tests, we examine short-run dynamics and long-run equilibrium relationships while controlling for trade openness and exchange rates. The findings reveal significant sectoral heterogeneity: health expenditures drive long-run growth, while education spending shows short-run benefits but long-run inefficiencies, likely due to skills mismatches. Defence and public services exhibit minimal growth impacts. Granger causality tests confirm unidirectional links, education fosters growth, while health and defence spending respond to GDP expansion. The study recommends reallocating budgets toward health and education, coupled with efficiency reforms in public services and defence, to achieve sustainable development. These findings offer a framework for fiscal policy optimization in resource-constrained economies
References
Afonso, A., & Furceri, D. (2008). Government size, composition, volatility and economic growth (Working Paper No. 04). ISEG - Lisbon School of Economics and Management.
Alrasheedy, A., & Alrazyeg, R. (2020). Government expenditure and economic growth in Saudi Arabia. American International Journal of Business Management, 3(8), 126-134.
Arestis, P., Şen, H., & Kaya, A. (2021). On the linkage between government expenditure and output: Empirics of the Keynesian view versus Wagner’s Law. Economic Change and Restructuring, 54(2), 265-303.
Atilgan, E, Ertuğrul, HM., Baycan, O & Ulucan H (2024) Health-led growth hypothesis and health financing systems: An econometric synthesis for OECD countries. Front. Public Health, 12: 1437304. doi:10.3389/fpubh.2024.1437304
Bexheti, A., & Mustafi, B. (2015). Impact of public funding of education on economic growth in Macedonia (BERG Working Paper Series No. 98). Bamberg University, Bamberg Economic Research Group.
Buthelezi, E. M. (2023). Impact of government expenditure on economic growth in different states in South Africa. Cogent Economics & Finance, 11(1), 2209959. doi:10.1080/23322039.2023.2209959
George, W. (2020). Higher education and industrialization in Tanzania. International Journal of Development Research, 10(11), 42029-42034.
Gisore, N., Kiprop, S., Kalio, A., Kibet, L., & Ochieng, J. (2014). Effect of government expenditure on economic growth in East Africa: a disaggregated model. European Journal of Business and Social Sciences, 3(8), 1-17.
Granger, C.W.J. (1969) Investing causal relations by econometric models and cross-spectral methods. Econometrica, 37(3) 424-438. https://doi.org/10.2307/1912791
Gujarati, D. N. (2004). *Basic Econometrics* (4th ed.). McGraw-Hill.
Kimea, A. J., & Kiangi, R. F. (2018). Economic growth and public spending on selected sectors in Tanzania. International Journal of Econometrics and Financial Management, 6(1), 7-16. doi:10.12691/ijefm-6-1-2
Kyissima, K. H., Pacific, Y. K. T., & Ramadhan, A. A. (2017). Government expenditure and economic growth in Tanzania: A time series analysis. International Journal of Development and Economic Sustainability, 5(1), 11-22.
Lawal, A. S., Nenlat, R., & Jacob, H. U. (2015). The Granger causality tests on the impact of government expenditure on economic growth in Nigeria. International Journal of Research in Science and Technology, 5(4), 126.
Magai, P. S., & Masele, R. E. (2023). Government expenditure and economic growth in Tanzania. Tanzanian Economic Review, 13(2).
Mosha, D., Aikaeli, J., & Osoro, G. (2021). Public health expenditure and economic growth in Tanzania: Evidence from autoregressive distributed lag and causality approaches. Tanzanian Journal of Population Studies and Development, 28(2), 1–19.
Mwamkonko, M. A. (2021). Can governments enhance long-run growth by reallocating public expenditure? Empirical evidence from Tanzania. African Journal of Economic Review, 9(2).
Ndanshau, M O. A., & A., & Mdadila, K. (2023). Government expenditure and economic growth nexus in Tanzania. African Journal of Economic Research, 11(3).
Onifade, S. T., Savas C., Savas, E., Asongu, S. & Bekun, F. V. (2020). An Empirical Retrospect of the Impacts of Government Expenditures on Economic Growth: New Evidence from the Nigerian Economy, Springer Journal of Economic Structure. Retrieved from https://doi.org/10.1186/s40008-020-0186-7.
Pesaran, M. H., and Shin, Y. (1999). An autoregressive distributed lag modelling approach to cointegration analysis. Chapter 11 in S. Strom (ed.), Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium. Cambridge University Press, Cambridge.
Paul, F. & Furahisha, G. (2017), “Government Expenditure and Economic Growth Nexus: Wagner’s Law or Keynesian Hypothesis for Tanzania?”, African Journal of Economic Review, V(I), 32-47.
Pulungan, R. W., Rahmanta, & Sembiring, S. A. (2024). Impact of government expenditure on education, social protection, public services, infrastructure, community empowerment, investment, and HDI on economic growth in Indonesia's 3T regions. Sinomics Journal, 3(3), 725–726. https://doi.org/10.54443/sj.v3i3.355
Sanjo, G. J., Sende, N. B., & Mpeta, I. F. (2022). Effect of trade openness and real exchange rate on economic growth in Tanzania. Journal of Economics, Management and Trade, 28(7), 47–64. https://doi.org/10.9734/JEMT/2022/v28i730424
Siafu, S. (2024). Re-defining the future of lifelong learning in bridging skills gaps and skills mismatch through the micro-credential frameworks. Journal of Adult Education in Tanzania, 26(2), 131-145.
Sosvilla-Rivero, S., Ramos-Herrera, M. del C., & Rubio-Guerrero, J. J. (2025). Public expenditure and economic growth: Further evidence for the European Union. Economies, 13(3), 60. https://doi.org/10.3390/economies13030060
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
Copyright (c) 2025 Eastern Africa Journal of Official Statistics