Effect of trade liberalization on economic growth of Uganda (2000-2019)

Abstract

The study aimed at examining effect of trade liberalization on economic growth of Uganda (2000-2019). The specific objectives were; to establish effect of Trade Openness on economic growth of Uganda, to determine the effect of Human Capital on economic growth of Uganda, to assess the effect of Capital Formation on economic growth of Uganda and to examine the effect of Labor Force on economic growth of Uganda. The study used time series data to determine the impact of trade liberalization on economic growth of Uganda. The study follows sequence of steps starting from a unit root test to determine if the variables are stationary or not. Augmented dickey-fuller test was used to test unit root, ordinary regression model with stationary time series is estimated and used to test for autocorrelation. Cointegration tests were followed to determine if there exist a long run relationship between gross domestic product and the explanatory variables in the model. The secondary data (readily available data from other sources) was obtained from different source but mostly from World Bank on www.worldbank.org/Uganda. Years were chosen from 2000 before the country started adopting trade policies that encouraged trade openness to the year 2019 due to availability of data. The source was the World Development Indicators. The data was then carefully arranged in MS Excel from year followed by variables in the model and was estimated using Gretl, which a cross-platform package for econometric analysis. This was analyzed with the help of SPSS packages was used to derive descriptive statistics and accompanying table, diagrams and graphs was also relevant for the study prior to the estimation of the regression line, descriptive analysis also were conducted to describe the behaviors of the individual variable over the duration of the study by plotting each variable against time ,it included testing for significant, correlation and stationarity between the Trade Liberalization and Economic Growth of Uganda. The study findings revealed that the explanatory variables, trade openness measure, capital and labor are statistically significant suggesting they have an effect on gross domestic product per capita of Uganda. Capital have a positive effect on gross domestic product per capita while trade openness measure and labor negatively affects the GDP per capita of Uganda given the negative sign of their coefficients. The study concluded that trade openness negatively affects the GDP per capita. Looking at vector error correction model to estimate the shorn run adjustments to long run equilibrium a negative value of -0.14 is obtained suggesting that 14 percent of deviation from long run in previous is corrected in the current year. If Uganda experienced some economic shocks, 14 x percent of the adjustments due to economic shocks would have been corrected in the current year. Based on these findings, the study recommends that Uganda should go more of trade liberalization policies to enhance more economic growth. A high rate of inflation, particularly inflation in food prices, is a constant danger to the wellbeing of the poor. There is no doubt that high rate of inflation if not checked effectively, will undo most of the effects of policies to enhance growth.