Does foreign aid promote exports in Uganda?

Abstract

The research analyzed the impact of foreign aid on export performance in Uganda. The primary aim of the study was to examine whether foreign aid promotes exports in the short and long term. The study used the Autoregressive Distributed Lag model to investigate the relationships between exports, foreign aid, exchange rate, trade openness, and industrial output. Data were sourced from the World Bank World Development Indicators and the Bank of Uganda and comprised annual time series data from 1990 to 2023. The main findings concluded that foreign aid had a significant and positive effect in the long run, suggesting that it enhances export performance if well spent on productive investments such as infrastructure improvement, agricultural modernization, and trade facilitation. However, in the short run, foreign aid negatively affects exports due to currency appreciation, which reduces export competitiveness. Trade openness positively and significantly affected exports; both the exchange rate and industrial output had insignificant effects in the long run. The study concluded that foreign aid has positive effects on export performance in the long run if it is allocated to productive sectors. Among its key recommendations, the report urges Uganda to strengthen its aid absorption capacity, prioritize investments in productive sectors, and enhance coordination mechanisms to ensure that aid more effectively supports trade. Subject keywords: Exports, Foreign aid, Uganda