Cashless Economy and GDP Growth in Tanzania: Implications for Macroeconomic Performance

Abstract

This study investigates the long-run and short-run determinants of GDP growth using the Autoregressive Distributed Lag modelling framework over the period 1993-2022, based on 30 observations. The analysis focuses on the roles of currency in circulation relative to GDP growth, inflation rate, foreign direct investment (FDI), and the real effective exchange rate (REER). The ARDL bounds testing approach confirms the existence of a stable long-run cointegrating relationship among the variables, as evidenced by an F-statistic that exceeds the upper critical bounds at all conventional significance levels. The estimated error correction term is negative and statistically significant, indicating a rapid speed of adjustment whereby approximately 74 percent of short-run disequilibrium is corrected within one year. Long-run results reveal that currency in circulation and inflation exert significant negative effects on GDP growth, while FDI has a positive and significant impact. On the other hand, short-run dynamics indicate that currency in circulation and REER positively influence GDP growth, whereas FDI exhibits negative short-run effects, reflecting adjustment costs and transitional dynamics.