Impact of financial development on economic growth in Uganda
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This study provides the empirical findings on the relationship between financial development and economic growth in Uganda from 1980 to 2016. From a methodological perspective, the study used the Bivariate Autoregressive (VAR) framework especially the Granger-causality test and innovation accounting (impulse response functions and variance decomposition). Empirical results demonstrated both a short and a long-run relationship between both financial development and economic growth. For financial deepening, the causality runs from financial deepening to economic growth and for financial sophistication, the causality is bi-directional but positive. The study further seeks to verify the impact of financial sophistication and deepening on Real GDP of Uganda. The study results support the hypothesis by McKinnon-Shaw which actually suggests that removal of distortions in the financial sector stimulates economic growth.