Re-examining the effects of trade openness on economic growth in Uganda

Abstract

This study uses the newly developed nonlinear autoregressive distributed lags (NARDL) framework approach to examine the effects of trade openness on economic growth in Uganda covering the period from 1990 to 2019. The study uses annual secondary time series data obtained from the World Bank Database for World Development Indicators (2021). The study employed the Augmented Dickey-Fuller and Phillips Perron tests to determine the stationarity components of variables and the nonlinear ARDL bounds tests to examine the presence of a cointegration relationship among the variables. The empirical evidence shows that the findings of the long-run effects of trade openness on economic growth are considerably different from those of the short-run effects. Despite improving economic growth in the short run, trade openness significantly retards growth in the long run, and the total effect (both in the short run and long run) of a negative variation in trade openness on economic growth is much larger than the total effect as a result of a positive variation. Therefore, the study suggests that the government should develop and strengthen policies and strategies that increase the allocation of resources towards improving trade-enabling infrastructure, improve the skills of the labour force, finance new capital investments and prioritize export promotion strategies. Keywords: International trade, Nonlinear ARDL, Trade openness, Economic growth, Nonlinear cointegration, Uganda JEL Classification: F13 • F14 • F41 • F43 • F60