The determinants of economic growth in Uganda (1985-2018)

Abstract

The study was carried out to examine the determinants of economic growth in Uganda from 1985 – 2018 and different diagnostic tests (unit root and cointegration tests) were carried out using annual time series data to avoid achieving spurious results. This study employs the Ordinary Least Square method to estimate the relationship between economic growth and the explanatory variables. The empirical results indicate that trade openness, foreign direct investment, gross fixed capital formation and inflation spur economic growth significantly. Population growth was found not to play a significant role in explaining the economic growth of Uganda. The study recommends that the government should increase trade openness by ensuring that trade arrangements are made to eliminate trade barriers such as regional trade agreements like the East Africa community (EAC), Common market for Eastern and Southern Africa (COMESA) and African Continental Free Trade Area (AfCFTA). The study also recommends that government reduces restrictions on foreign direct investments through providing open, transparent and dependable conditions for all kinds of firms, whether foreign or domestic, including: ease of doing business, access to imports, relatively flexible labour markets and protection of intellectual property rights. To increase capital formation, the study recommends that government needs to generate savings and investments from household savings or based on government policy. With a high rate of household savings, government can accumulate funds to produce capital goods faster, and a government that runs a surplus can invest the surplus in capital goods.