Asymmetric effect of inflation on economic growth in Uganda

Abstract

Low inflation and sustainable growth have been one of the major macroeconomic goals pursued by the Bank of Uganda. However, the country is faced with slow progress in terms of sustainable economic growth and keeping the prices stable due to low investment, a poor macroeconomic environment, and supply shocks due to COVID-19 among others. This study examines the asymmetric effects of inflation on economic growth in Uganda using a Nonlinear Autoregressive Distribution Lag framework and uses data from World Development Indicators. The study results reveal that an increase in inflation in the short- and long-run is detrimental to economic growth while a decrease in inflation has a positive association with economic growth in the long run. Furthermore, the study finds broad money supply and export growth are positively related to economic growth in the short run while in the long run, both investment and broad money growth were found to have a positive association with economic growth. To achieve high and sustainable rates of growth, the Government should maintain low and stable rates of inflation. In addition, the government should allocate more resources towards boosting local investors, as well as, foster export promotional strategies.