Unemployment and Economic Growth in Tanzania

Aims: This paper examined the impact of unemployment on economic growth in Tanzania and causal relationship between unemployment and economic growth in Tanzania.

Methodology: The study utilized co-integration and Dynamic Ordinary Least Square (DOLS) Approach to test the relationship between unemployment and economic growth and granger causality test to examine the causal relationship between variable.

Results: The unit root tests showed that the all variables were integrated after taking first difference, the Johansen co-integration result showed that the variables were co-integrated. The DOLS estimate showed that unemployment rate has positive impact on economic growth in Tanzania but insignificant influence over the study period. In addition, granger causality test revealed that, there is a unidirectional causal relationship between unemployment and economic growth with direction from economic growth to unemployment.

Conclusion: We suggest that there is the need for government to take urgent steps against the rising unemployment rate, because unemployment is a major impediment to social progress and results in waste of trained manpower.