The impact of oil imports on economic growth: Evidence from Uganda

Abstract

Production processes for most goods and services of every country depend on energy with oil inclusive. However, for a country like Uganda with few alternative sources of energy, over dependency on oil imports is likely to increase the cost of production which may implicitly and adversely affect the country’s growth. Therefore, this study extends a theoretical framework developed by Solow (1957) to investigate the impact of oil imports on economic growth in Uganda. First, it assesses the trend analysis of oil imports and GDP growth which is adopted as a measure of economic growth. Second, a long-run and short-run relationship between oil imports and economic growth is then examined. While using the World Bank data on World Development Indicators, this study further adopts the ARDL estimation strategy to examine the long-run and short-run effects of oil imports on economic growth in Uganda. The study findings reveal that the effect of oil imports on economic growth as measured by GDP growth is positive and statistically significant. In addition, other variables such as Human Capital and Gross Capital formation are also important in boosting Uganda’s economic growth. Though Gross Domestic Savings may be relevant for achieving faster economic growth in the short-run, the long-run results instead show that Gross Domestic Savings negatively impact on economic growth.