Impact of Remittances on Gross Domestic Savings in Uganda

Abstract

This study examined the impact of remittance inflows on gross domestic savings rate (GDS) in Uganda using secondary quarterly data for the period 1999-2017. The other macroeconomic variables used included; deposit interest rates, inflation and real per capita income. The study was investigated using the McKinnon and Shaw (1973) theory, of which the results were estimated using Vector Error Correction Modelling (VECM) to analyze the long and short run equilibrium among the variables. The coefficients on remittance inflows, real GDP per capita growth rate and inflation were negative while that of broad money supply and debt service were positive and statistically significant at 5% level on gross domestic savings in the long run. In the short run, a positive relationship was established between previous gross domestic savings and remittance inflows with gross domestic savings, while a negative short run relationship was established between broad money supply, debt service and current account balance with gross domestic savings. It was also established that while gross domestic savings may drift apart in the short run, the disequilibrium between the variables adjusted by about 26.2 percent towards their long run equilibrium within a quarter. The study recommends government to do more in providing investment opportunities including financial products for remittances-recipient households to direct the money they receive into productive investment.