High Technology Exports, Gross Capital Formation and Economic Growth in Uganda: A Vector Auto Regressive Approach

Abstract

This study examines the relationship between high technology exports, gross capital formation and economic growth in Uganda with the ultimate aim of establishing whether exportation of high-tech goods and gross capital formation have a significant effect on economic growth. Motivated by the continued policy shift in Sub-Saharan Africa and generally in the developing world, towards outward looking strategies, this study seeks to provide a validation test to this trend from a small open developing country perspective. The study utilizes data from the World Bank Development Indicators. This study estimates a basic Vector Autoregressive model to establish the likely effects of high-tech exports and gross capital formation on growth. The authors later provide in-depth analysis of our results using impulse response functions (IRF). Our Vector Auto Regression (VAR) results indicate that in the short run, high-tech exports do not have a significant effect on economic growth in Uganda and gross capital formation has a negative and significant effect. However, IRF reveals gross capital formation having a positive and significant effect on growth and the effect of high-tech exports improving significantly over a long horizon. Our findings do not contradict previous studies but support the belief that once economic fundamentals are put in place, high-tech exportation can spur growth more than mere export volumes.