The effect of public expenditure on private sector growth in Uganda 1992 to 2022

Abstract

This study examines the relationship between public expenditure and private sector growth in Uganda from 1992 to 2022. Using the Autoregressive Distributed Lag (ARDL) model, the research investigates both the short-run and long-run impacts of government spending across sectors such as health, education, and military on private investment. The results indicate that in the short run, military and education expenditures have a positive effect on private investment, while health expenditure exhibits a negative short-term impact. In the long run, health expenditure significantly promotes private investment, whereas military spending crowds out private sector growth. Education expenditure shows no significant long-run effect. The study finds that macroeconomic factors such as inflation and exchange rate also play crucial roles in shaping private investment decisions. These findings suggest that while public expenditure can stimulate private sector development, its effectiveness depends on the sectoral composition and timing of such spending. The study recommends prioritizing health and education investments and maintaining macroeconomic stability to support sustainable private sector growth in Uganda.