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This study examines the determinants of the rate of unemployment in Tanzania from 1980 to
2018. The model of this study is made up of one dependent variable (Unemployment rate)
and five explanatory variables (Gross domestic product, Inflation rate, Government
expenditure, Domestic investment and Interest rate). The study employed the Error
Correction Model (ECM) method to estimate the model after using the Augmented Dickey Fuller to test for unit root. The results show that GDP is statistically significant at five percent
level means that it is an important factor on the determination of unemployment in Tanzania.
However, the coefficient of GDP is positive and is not statistically significant because it does
not conform to the expected sign. This means, in Tanzania as output increases,
unemployment rate increases as well. This is due to modern technologies adopted in the
country which replace human labour. Similarly, inflation is statistically significant at five
percent level means that it is also an important factor on the determination of unemployment
in Tanzania. Also the coefficient of inflation rate is positive but statistically significant
because it conforms to the expected sign. It should be noted that, sometimes the economy
reaches a point whereby as inflation rises, unemployment rate rises as well. This has been
common in Tanzania due to petroleum and oil crisis. But, domestic investment is statistically
significant at ten percent level means that it is an important factor on the determination of
unemployment in Tanzania. Also, its coefficient is positive and not statistically significant
because it does not conform to the expected sign. This means as domestic investment
increases, unemployment rate increases as well. This is possible in Tanzania since domestic
investment is based on high technologies. However, interest rate and government expenditure
are statistically insignificant on determination of unemployment rate in Tanzania due to the
fact that most of Tanzanians do not save their money in financial institutions and money
budgeted annually that could be spent as capital expenditure are misused. |
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