Effects of gross savings on gross capital formation in Uganda

Abstract

This study seeks to investigate the Effects of Gross Savings on Gross Capital Formation in Uganda using annual data of a 33-year period from 1989 till 2021. The main objective of the study was to examine the relationship between gross savings and gross capital formation. The study revealed that gross savings affected gross capital formation in the short run period. The study was able to employ quantitative models to analyze the data. Data analysis was done using inferential statistics. The quantitative approach provided means of discerning, examining, comparing and contrasting and interpreting meaningful patterns through hypothesis testing and time series analysis. Secondary data was used and it comprised of macroeconomic variables that included Gross savings, Lending rate, real effective exchange rate and Gross capital formation. The data was analyzed under multivariate analysis using the Auto-Regressive Distributed Lag (ARDL) model and the results showed that gross savings had an effect on gross capital formation in the short run period (p = 0.000). The model was also tested for autocorrelation using the durbin-watson test and the results of the test suggested a mild positive autocorrelation. On testing using bounds test, it was discovered that there was no Cointegration in the lags. White's test results showed no evidence of heteroskedasticity, skewness, or kurtosis in the residuals of the regression model and on testing the stability condition of the model, it was discovered that it was a good fit.