A test of the export led growth hypothesis in Uganda

Abstract

The study was aimed at assessing the contribution of exports on the Economic growth of Uganda. The research was carried using time series quarterly data from 1990 to 2017. The time-series data was obtained from the Bank of Uganda (BOU) and Uganda Bureau of Statistics (UBOS) to establish the relationship between exports and Uganda’s economic growth. The study employed the unit-roots test to examine for stationarity of the data in order to avoid nonsense regression which is flawed and ambiguous. The study further uses the maximum likelihood method and the Vector Auto-Regressive method to test for co-integration among the variables. Vector Error Correction Model was employed to ensure that there is theoretical precision and data coherence and the model fulfilled all the diagnostic tests. The study establishes a two-sided causality between exports and economic growth i.e. when exports increase, an increase in economic growth is anticipated and when GDP increases, exports are expected to increase. It was discovered that exports have a positive long-run effect on the Economic Growth of Uganda however the given elasticity is rather inelastic and therefore an increase in the volume of exports leads to a less than proportionate increase in the level of Gross Domestic Product (GDP). The researcher recommends as a way to improve exports and earnings from them that Uganda should concentrate on the export of those commodities in which it has a comparative advantage as well as take advantage of the markets in its regional arrangements for example East African Community, Common Market for East and southern Africa to mention but a few.