Abstract:
An inward Foreign Direct Investment flow to the agricultural sector has not been impressive across
all developing countries including Tanzania. Exchange rate variability is one of the chief concerns
for this unpleasant trend. Following this obnoxious stance, this study mainly investigated the
empirical evidence on the effects of exchange rate variability on FDI inflows in the agricultural
development. Specifically, the study sought to; i) ddetermine the long run equilibrium relationship
between the exchange rate variability and inward FDI flow to the agricultural sector in Tanzania
within the period under study. ii) analyze the impacts of exchange rate and its variability on FDI
inflows to the agricultural sector in the country. iii) eexamine the direction of causality between the
exchange rate variability and FDI inflows to the agricultural sector in Tanzania within the same
period. Using monthly time-series data from 1999 to 2008, the study employed OLS techniques to
estimate the Multiple Regression model, Co-integration framework and Granger causality tests. The
findings indicated a significant long-run relationship with no strong evidence of causality effects
between the exchange rate variability and the real inward FDI flows to the agricultural sector within
the period. It was also found that the exchange rate and its variability significantly registered a strong
negative effect on the inward flows of real FDI to the agricultural sector in Tanzania. Policy
implications include the improvement and formulation of favourable government policies to attract
foreign investors to the country's agricultural sector.
