Macroeconomic Dynamics in Uganda: Investigating the Relationships among GDP Growth, Gross Capital Formation, Population Growth and FDI

Abstract

This paper sought to investigate Uganda's macroeconomic dynamics, informed by the objective of studying relationships among GDP growth, Gross Capital Formation (GCF), population growth, and net inflows of Foreign Direct Investment (FDI) by applying the endogenous growth theory. These key variables include GDP growth, GCF, population growth, and FDI net inflows; secondary data from national databases and international organizations were collected from 2000 to 2022. In this regard, the study follows a quantitative approach by adopting a descriptive and econometric design to investigate the relationship among the aforementioned variables. The methodological tools were Descriptive statistics, stationarity tests, multicollinearity testing, cointegration testing, and ARDL model estimation. These range from relative stability in GDP growth to the highly volatile GCF growth and smooth population growth trends to negative net inflows indicated by FDI. This confirms the long-run cointegration between the variables, whereby GCF proves to be firmly and positively related to GDP through an ARDL model. In contrast, variables FDI and population growth become influential after due lags. The results show that Uganda needs domestic and foreign investment to maintain economic growth; however, it has to deal with disinvestment challenges and an increasing population for long-term stability. This study finds that capital formation and foreign investment are integral to the Ugandan economy and can, if managed appropriately, ensure continued growth by overcoming these challenges in demography and investment