Impact of interest rate liberalisation on private investment in Uganda: 1980-2010

Abstract

This study analyses the impact of interest rate liberalization on private investment in Uganda for the period 1980-2010. The specific objectives were to evaluate the impact of interest rate liberalization on private investment as well as determining the way in which interest rate liberalization affects private investment by highlighting the structural relations relating real interest rate, exchange rate, GDP and public investment. Time series data for the afore-mentioned period was used. The study used Augmented Dickey Fuller test to establish the order of integration of the variables, Johansen Maximum Likelihood ratio test to establish the existence of cointegration and the number of cointegrating equations among the variables in the models. Error Correction models were used to examine the dynamic relationship among the variables. Interest Rate Liberalization among other variables was used as a key exogenous dummy variable. The study established that interest rate liberalization policies introduced in Uganda in the late 1980s have had a positive impact on private investment. The study recommends continued but careful execution of interest rate liberalization