Financial deepening, human capital develoment and economic growth In Uganda

Abstract

This study examined the effect of financial deepening on Uganda’s economic growth and evaluated whether human capital development strengthens this relationship. Although financial deepening is widely associated with growth, existing studies rarely explore how human capital moderates this effect in low-income economies, creating a gap this study addresses. Using an explanatory research design and secondary data from 1993 to 2024, the analysis employed regression and VECM techniques in EViews 13 to assess both short run and long run dynamics. The findings show that financial deepening contributes positively to economic growth through channels such as private credit, savings mobilisation and trade openness, while inflation and real interest rates weaken short run performance. Human capital development also demonstrates a meaningful influence on growth, with improvements in education and health supporting economic activity. The study’s central contribution lies in establishing that human capital significantly moderates the finance growth relationship, meaning that financial deepening has a stronger impact when human capital levels are higher. This interaction highlights the importance of coordinated investment in financial systems and human capital formation. Overall, the results suggest that financial reforms alone are insufficient for sustained growth and Uganda’s long-term performance depends on strengthening credit access, improving savings mobilisation and expanding investment in education and health to enhance labour productivity.