Private Sector Investment and Economic Growth in Uganda (1985-2014)

ABSTRACT The study aimed at examining the effect of private sector investment on economic growth in Uganda from the period of 1985 to 2014 using time series data. Specifically, the study examined the casuality, the long-run relationship between private sector investment and economic growth and also the impact of private sector investment on GDP growth. The objective was motivated by the fact that the problem statement emphasized that private sector investment has not yielded expected economic growth in Uganda. The study hypothesized that no casualty and long-run relationship between private sector investment and economic growth and that there is no significant effect of private sector investment on economic growth in Uganda. The study followed a multiple linear regression analysis which gives best linear unbiased estimates to establish relationships between GDP and the independent variables. Prior to the regression stationarity among variables was tested using ADF and Phillip Perron tests. The test results showed that all the study variables were stationary at level except trade, population and inflation rate that only became stationary after first difference. The granger causality test showed that in Uganda, private sector investment does not granger cause GDP growth. Johansen Co-integration tests showed existence of co-integration among variables. The regression model showed that there is a significantly positive effect of private sector investment (f3~=1 .454) and growth at 5% level, population growth (136=-0.874) showed a negatively significant effect on growth. Inflation rate and exchange rate effects were positively insignificant while trade and gross capital formation effects were insignificantly negative at 5% level. The study concluded there is no causality between economic growth and private sector investment and no a long-run equilibrium relationship between private sector investment in Uganda. The further concluded that private sector investment has a significantly positive effect on economic growth whereas population growth has a significantly negative effect on economic growth. Thus sustained economic growth in Uganda can be achieved through expansion of private sector investment combined with good exchange rates and price legislation. This study therefore recommends that government should enabling economic and political enviromnent to promote privatization in the country.

TABLE OF COTENTS

DECLARATION

APPROVAL

DEDICATION

ACKNOWLEDGEMENTS iv

TABLE OF COTENTS

LIST OF TABLES

ABSTRACT

CHAPTER ONE 1

INTRODUCTION 1

1.0 Introduction 1

1.1 Background of the study 1

1.1.1 Historical perspective 1

1.1.2 Theoretical Perspective 4

1.1.3 Conceptual Perspective 5

1.1.4 Contextual perspective 7

1.2 Problem Statement 8

1.3 Purpose of the study 9

1.4 specific Objectives 9

1.5 Hypothesis 9

1.6 Scope of the study 9

1.6.1 Content scope 9

1.8 Significance of the study 10

CHAPTER TWOS 11

LITREATURE REVIEW 11

2.0 Introduction 11

2.1 Concepts, opinions and ideas 11

2.1.1. Private Sector Investment 11

2.1.2. Economic growth 16

2.1.3. Theoretical Review 20

2.1.4. Empirical Literature 23

2.3 Research Gaps 28

CHAPTER THREES 29

METHODOLOGY 29

3.0. Introduction 29

3.1. Research design 29

3.2. Model specification 29

3.3 Data Analysis 35

3.3.1 Descriptive Analysis 35

3.3.2Unit Root Tests 35

3.3.3 Time series Analysis 36

3.3.4 Testing for Stationarity 36

3.3.5 The Augmented Dickey-Fuller Tests 37

3.3.6 Co-integration Analysis 37

3.3.7 Granger Causality Test 38

3.3.8 Diagnostic Tests 38

3.3.8.1 Serial Correlation Test 38

3.3.8.2 Normality Test 38

3.3.8.3 Multicollinearity tests 39

3.3.4 Heteroscedasticity Test 39

3.4 Ethical issues 39

CHAPTER FOUR 40

PRESENTATION, INTERPRETATION AND ANALYSIS OF THE DATA 40

4.0. Introduction 40

4.1.1: Descriptive Statistics 40

4.2 Correlation Matrix of the study variables 41

4.3. Time Series Property of Data 42

4.4 Granger Causality Test 44

4.4.1 Long run relationship between private sector investment and economic growth in Uganda 45

4.4.2 Co-integration Analysis 45

4.5 The effect of private sector investment on economic growth of Uganda 47

4.5.1 Regression Analysis of the variables under study 47

4.6 Diagnostic Tests 49

4.6.1 The Jarque-Bera Test for Normality 50

4.6.2 Breusch-Pagan for heteroscedasticity 50

4.6.3 Test for Serial correlation 51

CHAPTER FIVE 52

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS 52

5.0 Introduction 52

5.1 Summary of Finding 52

5.1.1 Granger causality between private sector and GDP growth 52

5.1.2. Long run relationship between private sector investment and economic growth in Uganda 53

5.1.3 The effect of private sector investmciit on economic growth of Uganda 53

5.2 Conclusion 54

5.3 Policy Implication and Recommendation

5.4 Contribution to the existing Knowledge 55

5.5 Areas for Further Research ss

5.6 Limitations of the study

REFERENCES 57

APPENDIX 63