An Empirical Analysis of the Relationship between Natural Gas Revenues and Economic Growth in Tanzania

Abstract

Like many other countries rich in natural resources, Tanzania has been blessed with natural gas discoveries that have come with multiple benefits. The objective of this study is to empirically analyze the relationship between natural gas revenues and economic growth in Tanzania. The study involved a dependent variable GDP as a proxy of economic growth and Gas Revenue (GREV) as independent variable. Quarterly time series data from 2004 to 2016 was used.  The Ordinary Least Square regression model and Error Correction Model were deployed for data analysis. The Augmented Dickey-Fuller (ADF) Unit root test for data stationarityshowed that variables attained their stationarity after 1^st level difference. The model results showed that there is a positive and significant relationship between natural gas revenues and economic growth in terms of GDP. A coefficient of determination of 0.59 implies that a unit increase of natural gas revenues would result to 59% increase in GDP. The adjusted R² of 0.54 implies that about 54% variation in GDP is explained by variations in natural gas revenues. Despite the positive significant between natural gas revenues and GDP,still Tanzania obtains its natural gas revenues from a narrow scope mainly gas royalties and profit share. The study recommends  that government should put more focus on its natural resource fiscal policies, to ensure there is continuous policy reviews to steer more revenues generation from the sector. Proper gas revenue management and utilization will help to align natural resource benefits with citizens' expectations.