The relationship between local government expenditure and local economic development (LED) in Uganda

Abstract

The study examined the relationship between local government expenditure and local economic development (LED) of the country. To achieve this, different specific objectives were examined that is to say; identifying the areas of local government spending that have the greatest impact on local economic development (LED) of districts in Uganda, determining the extent of relationship between local government and local economic development (LED), assessing local government spending patterns and how they vary across the different regions and recommendations were made based on findings obtained from the data analysis. The study used secondary data obtained from UBOS performance reports, Ministry of Finance, Planning and Economic Development budgets portal. A sample of 100 districts was selected from all the regions of Uganda. The findings reveal that, there was a positive relationship between local government expenditure and local economic development (LED) with a coefficient value of 0.509. The investment in community based services by districts greatly and positively affected the local economic development (LED) compared to investment in other sectors because a unit investment in community based services is associated with 16.718 UGX increase in GDP per capita of districts. However it only 1% of the local government expenditure. The natural resources sector also positively affected the local economic development (LED) of districts because a unit investment in natural resources is associated with a 4.148 UGX increase in GDP per capita of districts but it also constitutes 1% of total local government expenditure. Investment in finance sectors negatively affected the local economic development (LED) of districts. Education sector takes the largest proportion of local government expenditure constituting 44% of local government expenditure, and it positively affected the local economic development (LED) of the districts. The study recommends that the local governments should focus their investments towards exploiting untapped natural resources and developing a competitive advantage in relation to other districts so as to fasten their local economic development (LED). Community based services should also be considered as a priority by local governments so as to promote collaboration with district locals and private sector. Furthermore, local governments should be given more freedom to collect and distribute significant revenue into potential areas of local economic development (LED)