The effect of government spending on economic growth in Uganda

Abstract

The rapid growth in government spending in Uganda has caused concern among policy makers on the implication of such growth. Over the three decades, government expenditure in the country grew at a faster rate than the growth rate of GDP. Given this fiscal scenario, an explanation of this requires studying the effect of government spending on economic growth. This study therefore investigates the effect of government spending on economic growth in Uganda from 1992 to 2021. This is achieved through the simultaneous use of the Autoregressive Distributed Lag (ARDL) model. The study employs the unit root test, Philips Perron and the cointegration analysis of the bounds test procedure. The empirical findings reveal that military expenditure in the long run is positive and significantly related to economic growth implying that an increase in government expenditure in military increases economic growth. The study concludes that the composition of government expenditure matter for economic growth and therefore recommends that government should increase government spending through increased spending on public investment (in areas such as education, health); operation and maintenance of investment; public pay and employment; subsidies and public spending on low-cost services to alleviate poverty