Macroeconomic analysis of the impact of inflation rate on the economic growth of Uganda (1980-2019)

Abstract

This study aimed at determining the impact of inflation rate on the economic growth of Uganda specifically looking at the determination of the trend in inflation rate and GDP, investigation of the relationship between inflation rate, money supply and economic growth of Uganda using time series data obtained from the World Bank Development indicator tables for the period 1980 to 2019. The findings indicated a statistically significant and positive relationship (coefficient =0.692, p-value=0.02<0.05) between imports and GDP and also statistically significant and negative relationship (coefficient =-0.014, p-value=0.039<0.05) between inflation rate and GDP at five percent level of significance. Statistically insignificant and negative impact of money supply on GDP and positive impact of exports on GDP were revealed (p-value=0.467>0.05, coefficient=-0.003). The CUSUM plot revealed that the model is robust and structurally stable at 5% level of significance. The study concluded that Inflation rate and imports have influence on GDP in the long run at five percent level of significance whereas money supply and exports do not influence GDP. The study recommended that the government of Uganda through BOU should adopt efficient inflation-adjusting and reducing strategies so as to keep the rate at mild level, aim at investing in the human capital and health, support the agricultural sector by increasing the expenditure on the agricultural sector since it is the country’s economic backbone and largest employer of the Ugandan population and follow the flexible exchange rate regime where the real interest rate is determined by the global market forces of demand and supply.