The effect of public investments on the rate of unemployment in Uganda

Abstract

One of the economic issues that plague the Ugandan economy is unemployment. According to annual labor force survey 2018/19 report, unemployment rate stood at 12% which is in apposite with NDP III of 7%. The study sought out to assess the effect of public investments on the unemployment rate in Uganda from 1960 to 2020. The study employed a multivariate time series approach on World Bank labor survey data, using the vector auto regression (VAR) model to estimate the relationship between public investments and unemployment while controlling for other factors, including GDP, exchange rate, and gross national expenditure, which could affect unemployment. The VAR model results indicate that public investment has a weak negative effect on unemployment with a coefficient of -.086 (-1.91) **, implying that increase in public investment reduces unemployment. This is a key finding, as it indicates that public investment has the expected job-creation effect and thus lowering unemployment. Unemployment on its own lag (0.3025, *) positive and significant, indicating that unemployment is persistent, meaning higher unemployment is today is likely to lead to higher unemployment in the future. GDP, Exchange rate and Gross National Expenditure (GNE) show insignificant impacts on unemployment, indicating their effects are less pronounced. The study recommend focusing on enhancing public investment as a strategic approach to reduce unemployment. The weak negative coefficient of -0.086 suggests that increasing public investment can effectively contribute to job creation and lower unemployment rates. This finding highlights the importance of policy initiatives that prioritize public infrastructure projects like the youth empowerment project to stimulate job growth, the significant persistence of unemployment implies that timely interventions are critical. Policies that aim to create jobs now could help break the cycle of high unemployment rates. Given the insignificant impacts of GDP, exchange rates, and Gross National Expenditure on unemployment, it may be more effective to channel resources into public investment rather than relying on broader economic indicators.