Trade openness and economic growth in Uganda

Abstract

This study examines the impact of trade openness on economic growth in Uganda using annual time series data obtained from the World Development Indicators of the World Bank for a period between 1984 and 2019. The Johansen cointegration approach was used to check whether a long-run association exists among variables in the study. The Johansen cointegration results confirmed the presence of a long-run relationship among the variables which suggests the estimation of variables using VAR and VECM estimation frameworks to determine whether there is convergence to the long-run equilibrium. The VAR estimation results confirmed that indeed trade openness matters for economic growth, especially in the short run. Furthermore, the VAR Granger causality results indicate that there exists a unidirectional causal relationship in that economic growth enhances trade but trade does not promote economic growth. The VECM estimation results show that trade does not influence economic growth in the long run. The post-estimation results confirmed that residuals are normally distributed, no evidence of serial correlation, and all the eigenvalues lie inside the unit circle implying model stability. The study strongly recommends policies that provide an enabling environment for traders within Uganda and the neighboring countries so that trade in goods and services takes place without any barriers. Furthermore, the study recommends strong investment in infrastructure so that barriers to trade caused by bottlenecks in infrastructure are dealt with and enhance the smooth flow of goods and services across borders. Finally strengthening cooperation with other African countries so as to harmonize tariffs and guarantee constant movement of goods and services through regional economic integration.