The effect of young age dependency on economic growth in Uganda

Abstract

This study is motivated by the fact that Uganda has a high young age dependency ratio to the working population of above 85 %, which has to be matched by high savings and investment in the economy. However, Uganda’s low savings rate and low gross national income raises the fears that an increase in young age dependency increases the dependency burden in the country, which leads to slower economic growth and quality of life. This study sought to investigate the short run and long run effect of young age dependency on Gross National Income in Uganda from 1983-2020. The study followed a Solow growth model as a theoretical framework. The variables employed for this study were a mixture of I(0) and I(1) and as a result, the Autoregressive Distributed lag (ARDL) estimation technique was adopted. The empirical results from the study suggests that young age dependence, life expectancy and gross fixed capital formation have a positive and significant effect on gross national income in Uganda in the long run. The empirical results further reveal that gross domestic savings had a negative and significant effect on gross national income in Uganda in the long run while openness to trade and foreign direct investment have a negative and positive insignificant effect respectively on gross national income in Uganda in the long run. The short run results from the ARDL estimation revealed that openness to trade had a positive and significant effect on gross national income in Uganda. Furthermore, young age dependency, life expectancy and gross fixed capital formation had a negative but statistically significant effect on gross national income in Uganda in the short run. Based on these findings, it is evident that Uganda’s high young age dependency needs to be reduced although it shows that it promotes economic growth in Uganda. This study therefore recommends that Uganda should adopt policies that will reduce the young age dependency ratios to manageable levels such as family planning to reduce the high population growth rate and encouraging immigration for younger people to reduce the dependency burden. The study further recommends that the government should invest in training and skilling the young people for the country to guarantee guided development of the country. The government should take invest in the health, education and entrepreneurial as backbone for the young people to be productive and enhance sustainable economic growth in Uganda.