A better understanding of the relationship between economic policies and human capital formation through vocational education and training (VET) will help both development strategists and education planners. With this in mind, the paper begins with a social systems model to trace the impact of the economic environment and policies on the internal and external efficiency of VET. It continues with a discussion of how specific economic policies can shape efforts to improve the internal and external efficiency of VET. Some evidence of this relationship is provided in a review of the VET experience in selected countries. The paper concludes with some tentative lessons for VET lending and sector work as drawn from this review and offers an agenda for the further study and validation of the economic environment thesis.
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