International Trade and Economic Growth Nexus. Empirical Evidence from Uganda

Abstract

Exports, imports, and foreign direct investment were used as proxies in this study to examine the relationship between global trade and economic growth in Uganda from 1988 to 2018. Exports, imports, and foreign direct investment all strongly positively and significantly correlated with economic growth, according to empirical evidence. Unit root tests were performed using the Augmented Dickey Fuller test, and the results showed that all variables started out nonstationary but subsequently became constant. Due of the long-term correlations between the variables, cointegration was established using the Engle Granger Cointegration test. The variables' rate of adaptation to the long run within a one-year lag was 57%. Collectively, foreign investment, imports, and exports contribute for 77% of changes in the country's GDP. 23% of the variations in the growing size of the economy were caused by extra factors in the error term that were not included in the model. Because the F statistic was considered statistically significant, exports, imports, and foreign direct investment all have a significant impact on economic growth in the short run. For the sake of making policy suggestions, it is encouraged to use export marketing strategies to grow Uganda's exports and to give domestic businesses tax breaks to improve the way they perform. A welcoming investment atmosphere must also be provided for Uganda to attract foreign direct investment.