Relationship between government expenditure and economic growth in Uganda (1997-2016)

Abstract

The purpose of the study was to establish the relationship between government expenditure and economic growth in Uganda. The study covered the period from financial year 1997/98 to financial year 2015/16. The study used secondary data sources on total government expenditure and real gross domestic product for the period. Data on Real Gross Domestic Product (RGDP) was obtained from Uganda Bureau of Statistics (UBOS) while Data on total government expenditure was obtained from financial statistics from the Ministry of Finance, Planning and Economic Development. The study used the vector auto regressive techniques to examine this relationship. The diagnostic techniques associated with the vector auto regressive models were also carried out. These included normality test, unit root tests, test for auto correlations and serial correlations tests. The study established a long run relationship between government expenditure and economic growth. However, there was no short run relationship between the government expenditure and economic growth. The results from the study further supported Wagner’s hypothesis that economic growth influences government expenditure in Uganda. The findings through the granger causality tests, showed a unidirectional causality from gross domestic product to government expenditure. Overall, based on these findings, there is some evidence that economic growth influences government expenditure in Uganda. The study therefore recommends that; (i) the government should improve on the efficiency of public investments by aligning public investments to the medium and long term goals (ii) Government should minimize borrowing short term loans domestically to finance long-term investments, and (iii) There should be deliberate efforts by government to change the Ugandan economy from being a trade economy to a production economy through import substitution so as to reduce expenditure on goods produced outside the economy.