Macroeconomic Theory and Policy

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 Introduction
Economic growth entails raising the well-being and level of the lifestyle of the populace.

The productivity index scaled by the current population often indicates the degree of a nation's

economic prosperity, with more industrialized economies being those with significantly higher

production per person. Gross Domestic Product and Gross National Average Income are factors

used to gauge industrial prosperity. Governments prioritize economic and social development

above productivity expansion since the latter merely tracks changes in national efficiency.

Economic development, on the other hand, takes into account production per capita because

rising production and wealth must result in improvements in productivity per individual. Better

standards of existence and social evolution indices are frequent outcomes of economic progress.

On the other hand, economic growth may result in a different boost to economic health than

experienced in Uganda.

According to Okun (1962) and Phillips Curve Principle, the joblessness rate can

influence a country's degree of economic growth because economic progress is related to average

economic production (1958) (Akhuemonkhan, Raimi & Sofoluwe, 2013). However, given the

conflicting findings of previous investigations into the subject, a scientific investigation of the

connection between them is a worthwhile effort to support or reject the concept that the jobless

rate impacts economic development.

Analysis and review of Related Literature

Akhuemonkhan, I. A., Raimi, L., & Sofoluwe, A. O. (2013) indicates that the nation

possesses a vast accumulation of mineral wealth, comprising petroleum products, oil and gas, tin,

iron and steel, coal, gypsum, neodymium, lead, platinum, and agricultural land, in addition to an

enormous demographic that should raise productivity. Despite possessing a wealth of human and
natural assets that, in theory, should give it a comparative benefit over other nations in several

sectors, the nation has experienced stagnant growth over time. Since 2016, its unemployment

figure has been continuously increasing. While it registered a 10.7% unemployment problem in

2019, roughly twice the worldwide mean, the proportion stayed above the 5.4% worldwide

average. This situation raises the question of whether jobless in Uganda and the rate of economic

expansion are related.

A few investigations refuted Okun's theory regarding the connection between joblessness

and improving the economy. Some of them in this group came to the conclusion that there is, in

fact, absolutely no correlation among the variables. Still, others discovered that economic

expansion generates income, as opposed to the opposite way, as Okun claimed (1962). The

unemployment level is indifferent to economic production increases, and Okun's theory needed

to be more accurate and consistent in their analyses. Nevertheless, the specifics of each report's

findings differ from those of the case reports and are based on the amount of time that was taken

into account. Remarkably, there is disagreement over how joblessness and productivity

expansion are related (Conteh, 2021).

Akeju and Olanipekun (2015) observed that Uganda's situation does not support Okun's

law because of the country's strong growth rate and high rate of joblessness. According to the

report, Uganda's comparatively rapid development was caused by the country's reliance on oil

exports, which did not reduce poverty. Okun's regulation does not apply to low- and middle-

income economies since unemployment is not negatively connected with productivity expansion

(Akeju & Olanipekun, 2015). By examining the connection between unemployment and

economic progress in an identical nation throughout the same period, Makaringe & Khobai

(2018) demonstrated the discrepancy in the conclusions of investigations on the variables. Their
findings could have been more consistent. Economic growth is slowed by redundancy.

Employment is not what drives growth in the economy.

This indicates that the unemployment rate reduces when the change in monetary earnings

(inflation) rises and vice versa. The significance of this government policy has been that

Keynesian policies may be used to curb unemployment and price hikes (Better, 2019). Since

there will be a trade-off involving unemployment and price increases, they might accept a

comparatively substantial increase in inflation as long as it reduces unemployment. For instance,

monetary or financial policy might improve the economy by increasing GDP and decreasing

joblessness.

As the Phillips curve is extended, it would result in higher inflationary pressures at the

expense of experiencing less joblessness. The United States experiences throughout the 1970s,

which included times of rising unemployment and concurrently rampant inflation, forms the

basis for certain aspects of this argument (Goluwa, Jimmy & Nanfa, 2019). Many nations in the

1970s suffered significant concentrations of stagflation—a combination of high joblessness and

high inflation. The extensive experience of Uganda demonstrates that joblessness and inflation

have developed into pervasive issues that are challenging to manage. Prices for products and

services are growing. At the same time, unemployment is expanding as job applicants struggle to

find work that matches their qualifications, education, and economic competence (Adenomon et

al., 2018). Testable theories on the Phillips curve claimed that such an event might not occur, and

Milton Friedman led a vigorous campaign on the slope.

Given the evidence supporting and against the Phillips curve, it is now necessary to

examine its applicability in a developing economy, specifically Uganda. The considerable

experience of Uganda demonstrates that price inflation and joblessness have developed into
pervasive issues that are challenging to manage. The costs of both goods and services are rising.

At the same time, jobless is expanding as potential employees struggle to find work that matches

their qualifications, schooling, and industry experience (Goluwa, Jimmy & Nanfa, 2019).

Predictions based primarily on the Phillips curve claimed this might not occur, and Milton

Friedman led a vigorous argument on the assumptions of the Phillips curve. It is now essential to

investigate the Phillips curve's applicability in a third-world nation, specifically Uganda, in light

of the considerations made in favor of and against it.

Methods

The methodology in the article uses time series information to evaluate the applicability

of the Phillips curve within Uganda. The Ordinary Least Square approach was deemed adequate

for the study of the model. It was employed to estimate the modeling that has been constructed

after it was determined that the parameters were fixed at certain levels by using Augmented

Dickey-Fuller testing stationary measurement technique. Inflation has been the dependent

parameter (Y) in the analysis, which used a straightforward regression model, and jobless was

indeed the independent variable (X). Arithmetically, the concept was stated as INFL=f

(UNEMt), wherein INFLt = hyperinflation.

UNEMt=Unemployment.

The concept has been further described statistically thereby: INFLt=a+bUNEMt+ut………1

INFLt is the inflation rate.

A is the method's interception.

b is a component or the independent variable's exponent.

UNEMt= Represents Joblessness

It is an incorrect or random phrase.

The Census Bureau provided data sets for the rate of unemployment and inflation, which were

then interpolated. 

In the analysis of the impact of Okun's law on the economic development of Uganda, a

regression framework with other auto-regressive error structures was added to the spatial models.

In order to correct the fundamental spatial auto-correlation inaccuracy in cross-sectional

information, the given models are used. The expression below outlines the broad need for

Ordinary Least Square's suitability:

𝑦 = 𝜆𝑊𝑢 + 𝑋𝛽(1) + 𝑊𝑋𝛽(2) + 𝑢 |𝜆| < 1 (1)

𝜐 = 𝜌𝑊𝑢 + 𝜀 |𝜌| < 1 (2)

The generally lagged component of the predictor variables y is considered during the

initial formulation, which might include spatially lagged elements of all or some of the

explanatory parameters (the term WX). At the same time, a geographical framework for

unpredictable disruptions is considered in the second equation. Whereas in theory, the three

weight vectors in Calculations (1) and (2) do not need to match, this is not always the case in

actual applications. However, it could be challenging to rationalize a quick decision in real-world

situations. the researchers can also write the equation (1) as; 𝑦 = 𝜆 𝑊𝛾 + 𝑍𝛽 + 𝜐 |𝜆| < 1

Results and Discussions

Variable. Coefficient Std. Error t-Statistic Probability

UNEMP -0.990621 0.342801 -2.889785 0.0068

 C 29.9338 4.9490 6.08754 0.0000

R-squared 0.201951

Mean dependent var 18.07091

Adjusted R squared 0.178968

S.D. dependent var 17.09894

According to the findings above, joblessness has a significant negative relationship of -

0.990. This indicates that an increase in unemployed reduces rising prices by -0.990 percent per

unit. It furthermore implies that a 1 unit rise in joblessness throughout the Ugandan economy

results in a 0.990 percent decrease in inflationary pressure. This goes well with Professor

Phillips' hypothesis that there is an ongoing conflict involving price inflation and joblessness in

the business. Despite the factual findings, the Ugandan economy is suffering from economic

stagnation or rising unemployment while experiencing hyperinflation at the same pace. Since the

coefficients are smaller than 0.05 at 5%, the significance level of joblessness (0.00677) suggests

that the result is statistically relevant.

The multiplicity of measurement factor R 2 evaluates how well the model matches the

information. The measured R2 has been 0.20, or 20%. This indicates that the model's

components do not adequately account for the predictor variables. The consequence is that

around 80% of the common variance in the dependent parameter (inflation) remains

unexplainable; roughly 20% can be accounted for by adjustments to the independent variable

(unemployment). The number of predictors included in the model was considered while

modifying the R-squared to create the adjusted R2. The modified R squared rise only when an

additional predictor variable strengthens the model. It falls off when adding a new important
variable to the equation does not improve it. The resultant adjusted R-squared is 0.0.17, less than

the original R-squared. This suggests that adding a new important variable to the model will not

improve it.

According to the OLS results in the table above, joblessness and GDP within Uganda are

positively correlated. In Uganda, an increment in GDP results in a 0.0609 percent rise in

joblessness, which defies Okun's Principle. The GDP and intercepts are also not statistically

meaningful (p > 0.05). The OLS also has a poor R-squared of 1.195%. This conclusion implies

that Okun's principles do not apply in Uganda. This outcome is consistent with the studies by

Adenomon and Tela (2017). Our findings, meanwhile, go counter to those of other researchers,

particularly those from industrialized nations. According to the Moran analysis (p 0.05), spatial

synchronization was present—also, results of the Lagrange Multiplier diagnostics examination

for spatial heterogeneity.

 The result's implications serve as the foundation for spatial logistic regression. Although

the generalized autoregressive conditional model parameter shows a positive association, it is not

statistically significant (p > 0.05). Moreover, no spatial autocorrelation was determined by the

Regression analysis for residue correlation (p> 0.05). It follows that the spatial lag concept has

addressed the impact of autocorrelations. A unit rise in GDP also causes a 0.0497 improvement

in Uganda's unemployment numbers, according to the generalized autoregressive conditional

model results—moreover, a unit gain in GDP results in an overall rise of 0.1306 points in

unemployment.

Conclusion

This analysis used cross-sectional GDP and time series unemployment rate statistics from

2017 obtained from the Census Bureau of Ugandan and the world bank website to analyze how

Okun's principle and the Phillips Curve applied to the Ugandan economy. Okun's theorem in

economics is the connection between a nation's gross domestic product and its unemployment

rate. The Ordinary Least Squares (OLS) findings demonstrate a positive association between the

jobless rate and gross domestic product (GDP) across Uganda, while it is not statistically

significant. Nonetheless, the estimated model had spatial variability, which was substantial at the

5% level.

A simple examination of the Uganda economy reveals that inflation and joblessness are

increasing concurrently. However, employing time series data from 1985 to 2019, researchers

have objectively demonstrated that the Phillips curve exists and is operational in the Uganda

economy. The logical conclusion of this result indicates that the Phillips curve's reliability has

been demonstrated, demonstrating that both inflation and joblessness have a negative connection

to economic growth. Unemployment numbers and economic expansion rates have a negative
correlation, which indicates that the higher the unemployment rate, the slower the pace of

economic growth is, and conversely. The investigation did not look at the proportional impact of

a corresponding decrease in the unemployment numbers on productivity expansion, even though

this is compatible with the connection between joblessness and the expansion of the economy of

Okun's rule.
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