Impact of Domestic Savings on Economic Growth in Uganda

Abstract

This study mainly focuses on answering the questions: “Does domestic saving affect economic growth in Uganda? And Does GDP per capita growth Granger cause domestic savings growth in Uganda?” Time series annual data from 1982 to 2015 was used in the study. The Augmented Dickey Fuller Tests was performed to determine whether the time series were stationary or not; the Johansen Co-integration tests were also performed in order to discover the long run relationship between Gross Domestic Product Savings; and finally a pairwise Granger causality test was performed to determine the direction of causality between Gross domestic savings and economic growth in Uganda. The empirical results showed a positive significant relationship between Gross domestic savings and economic growth at the 10% significance level. The research results also confirmed the existence of positive, unidirectional causal relationship between economic growth and savings, thus the growth of Gross Domestic Savings was the cause of the growth of Gross Domestic Product in Uganda. The main conclusion drawn from the study indicates that if domestic savings are invested efficiently, they are an important factor of economic growth; the main objective of national economic policy therefore should be to encourage the people to save. In addition, national economic authorities should create appropriate conditions for the reallocation of national resources from traditional (non-growth) sectors to the so-called modern (growth-led) sectors of the economy, stimulating economic growth.