Examining the role of tourism sector on Uganda’s economic growth

Abstract

The aim of this study was to examine the role of tourism sector on Uganda’s economic growth using secondary data for the period from 1993-2023 obtained from World Bank Development Indicators. To achieve this goal, the Auto Regressive Integrated Moving Average (ARIMA) model was applied to analyze past trend and forecast future tourism earnings. In addition, Co-integration and vector error correction models were employed to assess the long-run and short-run effects of tourist arrivals and tourism revenue on economic growth, with real GDP serving as the dependent variable and tourism indicators as independent variable. All variables were transformed into natural logarithms for linearization, and stationarity was tested using Augmented Dickey-Fuller (ADF) and Phillips-Perron tests. Results indicated that the series were non-stationary at level but became stationary at first difference. Several ARIMA models, including ARIMA (1, 1, 0), ARIMA (0, 1, 1), ARIMA (1, 1, 1), ARIMA (2, 1, 0), ARIMA (0, 1, 2), and ARIMA (2, 1, 1), were evaluated using Akaike Information Criterion (AIC) and Bayesian Information Criterion (BIC), with ARIMA (2, 1, 1) identified as the best fitting model. Forecast results revealed that the trend of Uganda’s tourism earnings are likely to experience pattern of ups and downs (fluctuation) rather than steady growth. The VECM findings further indicate a significant positive long-run relationship between tourism arrivals and economic growth, where a 1% increase in tourism arrivals increases real GDP by 1.1985%. Similarly, the findings revealed that tourism revenue also has a significant positive long-run impact with economic growth, where a 1% rise in tourism revenue boosts real GDP by 1.7854%. However the results found that both tourism arrivals and tourism revenue do not have a significant impact on real GDP in short run. Based on the study's findings, the recommendation was the government should adopt policies that strengthen tourism infrastructure, diversify tourism products, and enhance marketing strategies to attract more arrivals and stabilize revenue flows. In addition, promoting domestic value addition, ensuring sustainable tourism practices and developing human capital in the hospitality sector are critical for maximizing the long-run economic benefits of tourism. By addressing these areas, Uganda can reduce revenue leakages, foster inclusive growth, and position tourism as a stronger driver of sustainable economic development.