Foreign direct investment and economic growth in Uganda (1990-2016)

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Kampala International University
This study examined the impact of the Foreign Direct Investment (FDl) on economic growth in Uganda using time series data from 1990-2016.The specific objectives of the study were: to examine the effect of FDI on Agricultural sector growth, Manufacturing sector growth, Industrial sector growth and Service sector growth in Uganda using Seemingly Unrelated Regression analysis (SUR). This method of analysis allows modeling of the sector growth rates on same set of FDI, Human capital, labour force trade openness and financial sector development. The study tested for stationary variables using augmented dickey fuller tests and corrected for stationary by differencing using one period. The results showed that there is a significantly negative effect of FDI on economic growth in Uganda. Trade openness and Human capital are some of the channels through which FDI inflows impacts on Uganda’s economic growth. Trade openness and financial sector development impact on economic growth positively. It was observed that FDI has a positively significant effect on Industrial sector growth implying that FDI inflow into the economy increases the growth rate of the industrial sector but it does not have a significant effect on Agricultural sector growth, manufacturing sector growth, and service sector growth. Other variables like domestic capital, labour force trade openness do not impact on the growth of agricultural sector, trade openness and inflation impacts positively on the growth of the manufacturing sector. In addition only financial sector development was observed to positively impact on the service sector growth, all other factors were insignificant. FDI channeled through trade openness, labour force and financial sector development impacts negatively on the economy. Therefore Uganda should encourage and attract FDI directed to the Industrial sector FDI channeled through human capital and improve on the domestic investments to enable the sector drive the economy. Uganda should focus on transfer of skill, knowledge from the FDI inflows to boost domestic investments, value addition and growth.
A research dissertation submitted to the school of post graduate studies in partial fulfillment of the requirements for the award of the master in economics policy and planning of Kampala International University
Foreign Direct Investment, Economic Growth, Uganda