| The first stage of the spread of the global financial crisis, which started in the US in 2007, was characterized by the rapid spread of the financial turmoil from the United States to other developed economies and some Emerging Markets (IMF, 2010; Willett et al, 2009). Many scholars at this time were of the view that the crisis would not touch developing countries due to having weak connection to the international financial instruments (IMF, 2009). A few months into the crisis, however, it was noted that such expectation would not be correct as many studies revealed that developing economies could be affected by the crisis through transmission channels.;In this study, using time series data, we investigated how the current financial crisis has been transmitted to the Tanzanian economy and the appropriateness of government policy responses to counter the recession. The channels we examined are foreign aid, export earning, foreign direct investment and government expenditure; all being percentages of real GDP. The study uses Vector Autoregression (VAR) models; and the Autoregressive Moving Average (ARMA) to assess the persistence of the economy to exogenous shocks and the Dynamic Ordinary Least Squares (DOLS). We found the global financial crisis had only a small effect on Tanzania's economic growth. We replicated the study to Kenya and got similar results. |
