Contribution of exports and trade liberalization to economic growth: Uganda's experience (1960-2010)

Abstract

This study analyses the contribution of exports and trade liberalization on economic growth thus testing the validity of the export-led growth strategy in Uganda. Specific objectives included examining the long-run relationship between exports and economic growth, analyzing the Granger causality between export growth and economic growth, and examining the impact of both government trade liberalization and the growth of labour force on economic growth in Uganda.

The study used annual time series data for the period 1960-2010 to build a model including real exports, real imports, real gross capital formation, total labour force, degree of openness of the economy, and a dummy variable representing trade liberalization as explanatory variables while the real gross domestic product was the explained variable representing economic growth. The study estimated the model in the statistical procedure of cointegration and Error-Correction Model (ECM). The study also tested causal relationships between exports and economic growth.

The study found a long-run and unidirectional relationship between exports and economic growth in that export growth causes economic growth and the converse is not true in Uganda. In relation to economic growth, the study also found that trade liberalization had a negative but insignificant impact while the total labour force had a significant positive relationship.

The study recommends more concentrated effort on the growth of exports and labour force for the two significantly and positively increased economic growth highly. The study also recommends that further opening of the economy be halted for some time because any further opening of the economy leads to retardation of the economy. For areas of further research, the study indicates empirical examination of the impact export diversification has had on economic growth in Uganda for long periods.