Effects of foreign direct investments on the economic growth of Uganda
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The advent of Foreign Direct Investments (FDIs) as one of the most fundamental drivers of economic growth in developing countries over the past two decades has prompted governments to beef up their attraction of FDIs into their economies, many developing countries especially those in Sub-Saharan Africa have resorted to encouraging Foreign Direct Investment (FDI) to enhance their growth performances over the long term. Studies like the UNTCAD have shown an increasing trend of FDI inflow towards the region, especially Uganda. The study was thus conducted to examine the effect of foreign direct investments (FDI) on Uganda’s economic growth (GDP) for the period 1960-2020 using annual time series data obtained from the World Bank World Development Indicators. The study employed the Augmented Dickey-Fuller (ADF) Test to test for unit root and the causality test using the Auto Regressive Distributed Lag model. The ADF test results showed a mixture of stationary and non-stationary variables. The study results suggested that most of the variables significantly affected the growth in GDP, but the Real Effective Exchange Rate didn’t significantly affect it, It showed that a change in FDI inflow had had a positive effect of 1.71% on the GDP from the previous period and after 2 lag period that reduces to 1.26% having other factors constant. On the other hand, the changes in NFA over GDP has a positive effect on GDP growth by 0.04% in the short term all other factors constant and then has a 0.04% negative impact on the 2-period average GDP growth after the lagged periods of years The positive effect of Foreign Direct Investments (FDI) on economic growth in both the short run and the long run could be an implication that FDI inflows are seen as an important source of savings and capital accumulation for Uganda, creating positive spillovers, improving human capital, providing access to advanced technologies and thus lead to more economic growth. However, during the lagged period, FDI inflow has a small positive and NFA had a negative effect on GDP, this could imply that over-dependency on FDI and having a large Foreign Assets base could exert negative pressure on the resources i.e., the infrastructure and institutions that develop with foreign investment support further foreign investment and negative externalities such as unemployment, over-urbanization, and income inequality which hinders economic growth. The study, therefore, recommends that the Government of Uganda must put in place policies that encourage foreign direct investment by limiting the use of foreign expatriates, and the reliance on foreign technology in the vital driving sectors of the economy and instead encourage the use of the country native solutions and local field experts.