The effect of interest rates on private local investments in Uganda, an empirical investigation (1 997-2006):

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Kampala International University, College of Economics & management.
The Uganda investment climate has been unstable since independence, with slow but growing levels of private investment. Thanks to the ERP of 1987 and the eventual enactment of the UIA Code Act of 1991, private investment in Uganda entered a new and more promising phase. The factors that have been at play as have been identified by earlier studies are both socio-economic and political in nature. However, in order to understand the actual determinants of PLI in Uganda, there’s need to descend down to the role interest rates play in this equation. This study therefore analyses the effect of interest rates on private local investments in Uganda. Panel data as well as time series data collected over the period 1997-2006 across five selected local firms was used. The major purpose of this research therefore was to establish the major factors determining private local investment in Uganda from 1997-2006. The study is based on the Keynesian and Neoclassical theories of investment. Both theories emphasize the key role played by the cost of capital and the level of profitability of an investment project in the investment function. This study is a non-experimental quantitative research based on a sample survey form research design. The research was carried out on local firms within Kampala. While some of the individual effects of the independent Variables like that of interest rates and cost of utilities are found to be negligible, the overall analysis is that all the independent variables have at least an effect on private local investment. The marginal effects of retained profits and taxes paid were 0.42 and 0.66 respectively while those of Interest rates and cost of utilities were - 0.02 and -0.01 respectively. The hypotheses tested in regard to this study were all found significant at a one percent level of significance and save for interest rates that were significant in the model only at 30 percent. The joint significance test using the Chi-square test found all parameter estimates significant at a one percent level of significance. The econometric results suggest that retained profits, as opposed to interest rates, play a major role in the investment function. The results also reveal that local investors are capable of supporting the economy if given an enabling environment. Therefore what the government ought to do is to provide a leveled playing field where both the private local and foreign investors are able to compete fairly. The research work was categorized into five chapters which have been presented as follows; the first chapter provides for the introduction to the study. Chapter two focuses itself on the literature review; and chapter three addresses itself to the aspect of research methodology. Data presentation, analysis and interpretation of results and findings have been done under chapter four, in chapter five is found the discussion, conclusion and policy recommendations to enable the effective utilization of the research findings.
a thesis submitted to the school of post graduate studies in partial fulfillment for the award of the degree of master of arts in economics of Kampala international university.
interest rates, private local investments, empirical investigation