Nicodemo, Elinzuu
(2018)
Impact of Human and Physical Capital
on Economic Growth: An Empirical Study for Tanzania with Causal link Analysis.
Masters thesis, The Open University of Tanzania.
Abstract
The aim of the study is to empirically investigate the effect of human capital and
physical capital on economic growth of Tanzania for the period of 1990-2015. The
study aims at empirically test the relevance of the Solow Growth Model (1957) and
Augmented Solow Growth Model. This study employed Ordinary Least Square
(OLS) techniques and annual time series data across the years 1990-2015 to shed
some intuitive light on evaluating influence of the key drivers of economic growth
by using unrestricted Cobb-Douglas Production Function. The study findings show
that the measures of responsiveness of GDP with respect to infinitesimal changes in
physical capital stock and labour force have turned out to be in line with Cobb and
Douglas (1928) findings in terms of theoretical signs; however, there is disparity in
the magnitudes of coefficients. Two types of models were estimated. In this report,
the Basic Solow Model turned out to be partially relevant to the Tanzania’s economy
context, the Augmented Solow Model was also partially acquiescent with
prescriptions by Mankiw et al. (1992). The study also performed Granger Causality
analysis to determine variables causal links. The results show that there are no clear
causal links between the three variables: GDP, GFCF and LABOUR FORCE.
However, the results suggest further that there is unidirectional causation that runs
from capital per labour to GDP per capita; this implies that increase in the physical
capital per unit of skilled labour leads to increased economic growth. In view of the
foregoing findings, the results suggest that the country under study need to optimally
allocate national resources to the drivers of economic growth and devising consistent
human resource policies, investment policies and population policies that are in
particular targeting to accelerate GDP growth.
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