Macroeconomic Determinants of Trade Balance of Uganda’s Economy for the Period 1995-2019

Abstract

This study was an investigation, on the macroeconomic determinants of net external trade balance of Uganda’s economy for the period 1994-2017 whose outcome variable is total trade balance. It specifically, examined the influence of the interest rates (%); exchange rates (%); Inflation (%); money supply (UGX) and GDP on the balance of trade of Uganda for the period 1995-2019. The findings revealed that over the period, money supply was UGX 7560.729 million while the GDP was averagely US$ 13.80417 billion. The average interest rates in the country was 21% due to the lower bank rate. There has been hyper-inflation over the period ranging between -.3 to 18 percent while on average, inflation has been at 7% deemed to be dangerous to the economy. Exchange rate and GDP at current prices in billion USDs were significantly associated with trade balance of Uganda whereas Money Supply (UGX billion) had a strongly negative correlation and lastly, the inflation rate was found to be independently related to Uganda’s trade balance. Therefore, Uganda’s trade balance has been observed to frustrate most of the key macroeconomic aggregates by a larger proportion according to bivariate analysis. Higher money supply in the country make citizens extravagant and Lower exchange rate makes locally produced goods and services in the country appear cheap which encourages domestic production and investment thus raising the trade balance of the country. So, in order to improve Uganda’s trade balance, the central bank of Uganda should make an attempt to have a lower exchange rate, to provide a suitable way of improving competitiveness, reducing the overseas price of exports and making imports more expensive.