Effect of government- expenditure on agricultural sector on economic growth in Uganda

Abstract

Fiscal policy is one of the key instrument a government applies to foster economic growth. The policy is mainly concerned with raising government revenue and incurring of government expenditure. The effectiveness of government expenditure on economic growth depends on how recipient sector efficiently use the allocated resources. This study contributes to this research area by investigating the effect of government agricultural expenditure on economic growth in Uganda. This study sets out to examine the relationship between government expenditure on agriculture sector and economic growth in Uganda for the period 1980 to 2021. The existence and nature of a link between government expenditure on agriculture and economic growth has been the subject of considerable interest and debate among academicians and policy makers. The study employs secondary annual time series data for the period 1980 to 2021 and uses the Autoregressive Distributed lag Model approach to examine the short and long-run relationship between government agricultural expenditure and economic growth in Uganda. The findings of the study indicates that one unit increase in expenditure on agriculture increases economic growth by 0.886 units in the SR and while in the LR increase in government expenditure by one unit leads to an increase by 2.76 units of economic growth in both short and long-run. Other factors that are associated with positive economic growth include money supply, capital formation and FDI growth rate, while population growth is negatively associated with economic growth. From our study findings, the emerging policy lessons indicate that for developing countries like Uganda to promote economic growth, they should put in place measures aimed at boosting prudent and sustainable government agricultural expenditure such as enhancing the sector productivity given its high backward and forward linkages in the economy. There is need for government to take up measures aimed at controlling population growth to avert the negative effect in the country that might distort economic growth. Alternatively, efforts should be aimed at increasing the income of the growing population through creating jobs. People will earn income and increase aggregate demand in the economy hence more production leading increase in economic growth. Finally, money supply is another cause of economic growth in Uganda, so there is need for government to implement prudent monetary policy measures such as low bank lending rates to the private sector to boast domestic investments and at the same time high exchange earnings enable importation of capital goods for meaningful investments in the country.