Interest rate, real exchange rate and private sector investment in Uganda (1995-2015)
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Date
2017-05
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Kampala International University, College of Economics and Management
Abstract
The study was set to determine how both interest rates and real exchange rates influence the level of private sector investment in Uganda. The study objectives included to determine the relationship between interest rates and private sector investment in Uganda 1995-2015, to determine the relationship between real exchange rates and private sector investment in Uganda 1995-2015. A correlation research design is used in determining the relationship between variables in which the data sets for the independent and dependent variables are entered in software and through comparison a relationship is attained. Analysis was carried out using a combination of both correlation and an ordinary least squares multivariate regression model. The findings on the objective reveal that there is a negative relationship between interest rates and private sector investments in Uganda from 1995-2015. This implies that lower Interest rates encourage additional investment spending, which gives the economy a boost in times of slow economic growth. It adjusts interest rates to affect demand for goods and services, on the second objective there is a strong negative relationship between the real exchange rates and level of investment in the country. It implies that as the real exchange rates collectively called the price level is increased; the level of investment in the country will decrease. These results are consistent with previously conducted correlation analysis of the relationship between the interest rates and private investment in the country. The researcher concludes that there is a very weak negative relationship between interest rates and the level of private investment in the country. And there is a strong negative relationship between the real exchange rates and level of private sector investments in the country, In other words the results implies that an increase in the interest rates is expected to lead to a decline in the level of private investment in the country. The researcher recommend that fiscal and monetary strategies for stimulating private investment like offering tax holidays to prospective investors would be a better option since relying on interest rates alone is not significant enough. Due to the very significant relationship between the real exchange rate (price level) and private investment in Uganda, the study recommends the policy makers ought to adopt strategic and systematic ways of controlling and adjusting the real exchange rate since their impact on the overall level of private investment can easily be felt and finally the researcher recommend for the establishment of a strong finance mechanism that will improve the state of functional of interest rates, real exchange rates through establishing a strong policy framework that can guide the execution of the duties of financial system controls in Uganda
Description
A thesis submitted to the College of Economics and Management in partial fulfillment of the requirements for the award of Master’s degree of Economic Policy and Planning of Kampala International University (KIU), Uganda
Keywords
Interest rate, Real exchange rate, Private sector investment, Uganda