Challenges in the Era of Globalization - iaabd

Proceedings of the 12th Annual Conference © 2011 IAABD
Statement of the research problem
Although at first the Government wanted people to believe otherwise, the negative effect of the crisis was
almost obvious as, for example, some companies were forced to retrench staff due to declining sales.
During the time of the crisis what remained elusive was the extent to which the Tanzanian economy was
affected and “how do we monitor and address the impact on our economy resulting from this economic
downturn?”
Research objectives and questions
Given the research problem the study had the following specific objectives to achieve.
1. To identify and analyze the economic effects of the world financial crisis on Tanzania’s economy;
2. To identify and analyze whether any specific efforts have been taken by the Tanzanian government in
trying to address the effects of the financial crisis.
Literature Review
Causes of financial Crises
The financial crisis that unfolded around mid 2007 was not the first one in the world’s economic history.
It was just one of many including the 1930 crisis and the Eastern Asia countries crisis of 1997-98 (Liu,
2000). Financial crisis has been defined as a “disturbance to the financial markets that disrupts the market
capacity to allocate capital to financial intermediation and hence investments come to a halt” (Portes,
1998). The financial crisis may disrupt financial markets in various forms including foreign exchange
market disruptions, banking system disruptions or a debt crisis (Portes, 1998). Portes also stipulates that
although historically the financial crises have originated from the banking system, the true causes
(sources) are normally too complex to establish. In this vain, Portes’ (1998) statement reflects the cyclic
causation and relationship among many drivers.
The causes of the crises have been determined through research around the world to include (but not
limited to):
• Maturity mismatch between borrowings and lending (Portes,1998; Liu, 2000).
• Poor regulations in the financial sector (Liu, 2000; Portes, 1998; Eiteman et al, 2008; World bank
1998 in Liu, 2000).
• World financial markets inefficiencies (Portes, 1998; Eiteman et al, 2008)
• Sub-prime mortgages’ markets failures (McCulloch, 2008; Blundel-Wignall et al, 2008).
• Excessive foreign reserves in some countries specifically China and Middle East (McCulloch, 2008;
Blundel-Wignall et al, 2008).
• Expansionary monetary policy in OECD countries and macroeconomic policies failures (McCulloch,
2008; Blundel-Wignall et al, (2008).
• General regulatory and policy failures (Blundel-Wignall et al, 2008; Saunders, 2008).
• Corporate governance failure (Blundel-Wignall et al, 2008; (Blundell-Wignall and Atkinson, 2008;
Saunders, 2008).
Theoretical and empirical literature, therefore, underscore the fact that the causes of the financial crisis
originate from extreme and unsustainable economic growth, poor regulations of the financial markets and
the impact of policy changes in the “networked” global economy.
Effects of the financial crisis
The financial crises affect the world economies differently, depending on how each country is linked to
the world economy particularly the financial sector. These effects are usually reflected on:
• Value of assets (Liu, 2000; Portes, 1998; McCulloch, 2008; AFDB, 2009).
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