Government Expenditure and Economic Growth in Uganda.

Abstract

The main objective of this study was to establish the effect of government expenditure on economic growth in Uganda. The data used was quarterly secondary time series obtained from World Bank website (world development indicators) and Ministry of Finance Economic Planning and Development (MoFEPD). The dependent variable of the study was Economic growth whereas development expenditure, recurrent expenditure, real interest rate, gross domestic savings, gross capital formation, taxes and inflation were the independent variables. Analytically, the study generated an Auto Regressive Distributed Lag Model after testing for unit root using the two tests; Augmented Dickey Fuller (ADF) and Philips Perron (PP) unit root tests. The results from the Auto Regressive Distributed Lag Model did not suffer from the problems of spurious regression, heteroskedasticity, multicollinearity and autocorrelation based on the post-estimation tests carried out which included Autoregressive Conditional Heteroskedasticity (ARCH), Breusch-Godfrey Serial Correlation LM Test, Variance Inflation Factors and the Normality Test. The findings of the study indicate that both recurrent and development expenditure have a significant positive effect on economic growth both in the long run, capital formation was also found to have both short run and long run significant positive effect on economic growth while inflation and domestic savings were found to only have a short run significant effect on economic growth. The implication of these findings is that government should adopt an expansionary fiscal policy with major focus on the development expenditure component in order to stimulate growth and achieve the desired goals like Vision 2040.