Effect of remittances on Uganda’s economic growth

Abstract

This study investigated the effect of remittances on Uganda’s economic growth using annual data for the period 1986 to 2017. In this study, the Autoregressive Distributed Lag (ARDL) model was used. The variables that were considered consisted of real GDP per capita, remittances per unit of labor, real effective exchange rate, foreign direct investment per unit of labor, gross capital formation per unit of labor, human capital per unit of labor and public debt per unit of labor. According to the ARDL model results; remittances showed a significant negative effect on economic growth at 5 percent level and the same was found in the short run but insignificant at 5 percent. The study also noted that even though economic growth might float in the short run, it adjusts by 59.3 percent to close the gap between the present level and the long run equilibrium level. Thus, the Ugandan Government is recommended to train the public in financial planning and business management such that remittances can effectively harness economic growth. The Government is also encouraged to support any efforts aimed at improving domestic financial institutions, since strong institutions seem to be better at unlocking the potential for remittances to contribute to growth faster.