Inflation and foreign direct investment in Uganda from 199m2015

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Kampala International University, College of Economics and Management
The main purpose of this study was to investigate the effects of inflation on foreign direct investment in Uganda from 1990-2015. It was driven by two major objectives; which are;to determine whether the inflation significantly effects foriegn direct investment in Uganda. And to examine the causality between inflation and foreign direct investment in Uganda.Usjng time series data from the World Bank and Uganda Bureau of Statistics, both correlation and regression analysis statistical tools were applied to investigate and explaining the variation in inflation.Using Consumer Price Index capitalis considered which can be taken as the independent variable. As well as foriegn direct investmen.representing Uganda’s total of equity capital is considered which is taken as the independent variable in this study examined the impact of inflation on FDI in Uganda and found that inflation has a negative impact on FDI. On average, this study concludes that inflation has been decreasing from three digits in mid 1980s to double digits in l990s and 2000s.The data also shows the FDI has been generally increasing in the recent years though with a lot of fluctuation. This is because, the investment environment in terms of security and economic factors like inflation having generally been conducive in the country explaining why FDI has been increasing on average. The correlation analysis showed that inflation is negatively related to FDI implying that when inflation increases, FDI reduces. Furthermore, the findings of regression analysis showed that the inflation explain 63.31% of the variation in overall Foreign direct investments in the country. The P-value ( 0.0002) of the model also showed that the model is statistically significant and the diagnostic tests were carried out to confirm that the model was relevant. This study suggests to encourage FDIin Uganda, because encouraging FDI is a key ingredient to sustainable economic gro~h.So it isa necessary to use best practices in investment regulations to attract FDI by making easy three conditions, which are Entry procedures, Locating procedures and Operating procedures. As well as Tax Incentives which encourages foreign investors, when it comes to FDI encourage in a competitive world, governments should turn to special fiscal incentives in order to attract the ever more mobile multinational companies. So that it will hold up FDI in Uganda as this would enable Uganda witness high and sustainable growth. Also FDI should be incourage towards the industrial sector and more especially agricultural sector of the economy since agriculture is the backbone of the Uganda’s an economy.
A thesis submitted to the college of economics and management in partial fulfillment of the requirements for the award of a Master in Economic Policy and Planning Degree of Kampala International University
Inflation, Direct investment, Uganda