Effects of inflation on economic growth in Uganda

Abstract

The topic of the study was assessing the effects of inflation on Economic Growth in Uganda (2000-2020) and the specific objectives of the study were to examine the trend of inflation in Uganda, to find out the trend of Economic Growth in Uganda using GDP figures, to find out whether there is a relationship between inflation and economic growth. The null hypothesis of the study was there is no stationarity trend on inflation in Uganda, there is no stationarity trend on economic growth in Uganda using GDP figures in Uganda, there is no significant relationship between inflation and economic growth. The study findings revealed that inflation in Uganda has been an increasing trend but at a slow rate and ARIMA model showed that an increase in time by a year increases inflation by 1.212903 with a standard error of 0.4663265 and it was stationary and statistically significant at a 5% significance level and due to the reduction in inflation, economic growth is improving highly as Uganda registered a great improvement in economic growth since 2016 up to date and the variable economic growth was non-stationarity and ARIMA model showed that economic growth had a statistically significant positive increase with time. The study also found out that there is a weak positive linear relationship between inflation and economic growth meaning that as inflation increases at a slow rate yearly, economic growth increases by 0.129047. This means that to increase economic growth highly, inflation should be curbed down. The study recommended that the government should implement policies that can curb down inflation in order to improve economic growth, the government should stabilize exchange rate of the country in order to reduce on imported inflation that slows down economic growth, the government should curb down inflation in the short run since it affects economic growth in the long run.