Impact of exports on economic growth in Uganda

Abstract

The study analyzed the impact of exports on Uganda’s economic growth. It specifically analyzed the effect of variables; as exports, imports, gross capital formation, foreign direct investment and real effective exchange rate on Uganda’s GDP growth. Data was used and was extracted from the World Development Indicators of the World Bank. It spanned between 1983 and 2020. Other data used was from documented records of studies carried out by IMF and BOU. The study used the export-led growth hypothesis (ELGH) first suggested by Kindleberger (1962). A lin-log regression ARDL technique was used for analysis to obtain the variables’ results in the estimated two models. Descriptive statistics revealed that over time Uganda’s GDP has been rising as well as exports and imports. However, imports are more than exports hence the reason for the balance of payments deficit. The major regression findings show that the impact on economic growth is inconclusive both in the short run and long run. Regarding the effect of imports, the results showed that the effect was positive on economic growth. A similar finding applied to real effective exchange rate and Foreign Direct Investment (FDI) positively. Inconclusive results were obtained for the case of inflation rate. The longrun finding showed that exports together with other independent variables had a longrun relationship with the Ugandan economy. The study concluded that GDP, exports, imports, gross capital formation (GCF), foreign direct investment (FDI) and real effective exchange rate (REER) have been rising over the period. Regression results help conclude that currently the impact of Uganda’s exports on GDP is inconclusive, whereas imports have a positive effect; FDI had a significant effect on economic growth hence highlighting the importance of FDI to the economy. The study also concluded that real interest rate had a positive effect on economic growth. The study recommended that the government through its financial and economic policy planning organs such as the central bank needs to take into policy measures to attract and increase FDI inflows into Uganda. REER control policies and inflation rate targeting should be exercised in order to create a good environment for economic growth.