Gross domestic saving and economic growth in Uganda: empirical evidence from vector error correction modelling

Abstract

This study examines the effect of gross domestic savings (GDS) on economic growth in Uganda using annual time series data over the period 1990 – 2021 using Vector Autoregressive (VAR) and Vector Error Correction Model (VECM) approaches. The VAR and VECM results indicated the presence of short-run and long-run equilibrium relationships between economic growth and the explanatory factors. Specifically, the results indicated that GDS exhibited a positive and significant long-run effect on economic growth but a negative and significant short-run effect on economic growth. The results further indicated that gross fixed capital formation, labour force participation rate, inflation rate, trade openness and general government final consumption expenditure had both short-run and long-run relationships with economic growth. The study recommends policies that are directed towards promoting domestic savings both public and private savings as this can generate higher investments that establish employment opportunities that may lead to high economic growth. Besides, rigorous efforts are needed to support private businesses by offering an enabling environment ( such as political stability and infrastructure development) that enhances investment opportunities that create job opportunities thereby stimulating economic growth. Key Words: Gross Domestic Saving; Economic Growth; VAR; VECM; Uganda