Impact of foreign direct investment on Uganda’s manufacturing sector

Abstract

This study examines the impact of foreign direct investment (FDI) on Uganda’s manufacturing sector output growth using the ARDL bounds testing approach over the period 1983-2020. Study findings show that FDI has a positive and negative significant long-run effect and short-run impact on the manufacturing sector output, respectively. Furthermore, the results indicated that financial development has a negative long-run effect on manufacturing output growth while government expenditure, exchange rate, external debt stock, gross fixed capital formation, export of goods and services, and inflation rate have a positive and significant long-run effect on manufacturing output growth. On the other hand, the results revealed that financial development and exchange rates have a positive and significant short-run effect on manufacturing output growth while external debt and gross fixed capital formation exhibited a negative and significant short-run effect on manufacturing output growth. The study recommends policies that attract FDI inflows in Uganda, for example, allocating funds that support infrastructure development (in the form of ICT centers, good road networks, electricity, and internet connectivity) to support the growth of the manufacturing sector output and the overall performance of the economy. Key Words: Manufacturing; Foreign Direct Investment; ARDL; Uganda