Human Capital and Macroeconomic Stability in Tanzania: Vector Error Correction Model (VECM)
Keywords:
Foreign Direct Investment (FDI), Human Capital Development, Macroeconomic Instability Index (MII), Macroeconomic Stability, Vector Error Correction Model (VECM)Abstract
The study examines the relationship between human capital development and macroeconomic stability in Tanzania, employing a Vector Error Correction Model (VECM) approach. Human capital, encompassing education, health, and workforce skills, is critical for economic growth and resilience. Despite significant investments in education and healthcare, Tanzania continues to face macroeconomic instability marked by inflation, unemployment, and economic volatility. The study spans 1985–2024, revealing that while human capital has grown due to reforms and technological advancements, macroeconomic instability persists. This suggests that the benefits of human capital investments are not fully realized in fostering economic stability. The findings highlight both short- and long-term dynamics, with mixed evidence on causality between human capital and economic growth. The research underscores the complexity of translating human capital improvements into stable macroeconomic outcomes and emphasizes the need for targeted policies. Recommendations include prioritizing fiscal policies over monetary interventions, enhancing institutional frameworks, and fostering inclusive growth strategies.
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