Effect of gross savings on economic growth in Uganda

Abstract

Savings are regarded as an engine of economic growth which contribute substantially to the development process of the economy. This study examined the effect of gross savings on economic growth in Uganda using annual time series data obtained from the World Development Indicators of the World Bank for a period between 1983 and 2020. The study implemented the Augmented Dickey Fuller and Phillips Perron tests to determine the order of integration of the study variables and employed the ARDL bounds testing approach to cointegration to ascertain the manifestation of level, short run and long run relationship among the study variables. The ADF and the Phillips Perron (PP) unit tests revealed that the variables contained a mixture of order zero and order one variables which confirmed the use of ARDL bounds testing approach to cointegration. The bounds test results demonstrated evidence of a level relationship among the variables while the ARDL model indicated the presence of short and long run equilibrium relationship between economic growth and the regressors. Precisely, the results specified that gross savings exhibited a positive and significant long run effect on economic growth but with a negative and significant short run effect on growth. Generally, the goodness of fit and whole significance of the model indicated that the model is highly significant, suggesting that variations in economic growth are explained by the regressors used. The study recommends policies that are anchored towards promoting savings both public and private savings as this can trigger higher investments that establish employment opportunities that can lead to high economic growth. Besides, concerted efforts are needed in supporting private businesses by offering an enabling environment that enhances investment opportunities that create job opportunities thereby stimulating economic growth.