THE IMPACT OF FOREIGN DIRECT INVESTMENT (FDI) ON ECONOMIC

GROWTH: A CASE STUDY OF UGANDA

NYIRANZEYIMANA SARAH
19/U/EKD/14323/PD

A RESEARCH REPORT SUBMITTED TO THE DEPARTMENT OF

ECONOMIC AND STATISTICS IN PARTIAL FULFILLMENT OF THE
REQUIREMENT FOR THE AWARD OF A BACHELOR OF ARTS IN
ECONOMICS OF KYAMBOGO UNIVERSITY
MAY, 2023
 DECLARATION
I, NYIRANZEYIMANA SARAH, do hereby declare that this Report titled "The
impact of foreign direct investment (FDI) on economic growth: a case study of Uganda
", has never been submitted to any University
NYIRANZEYIMANA SARAH
19/U/EKD/14323/PD

i
 APPROVAL
This Report by NYIRANZEYIMANA SARAH e n titled "The impact of foreign direct
investment (FDI) on economic growth: a case study of Uganda " was done under our
supervision. It is ready for submission for examination as prerequisite for the award
of the bachelor’s degree in economics

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 ACKNOWLEDGEMENT
I deeply appreciate my supervisor a lecturer at the department of Economics for his unwavering
support and professional advice as my supervisor that he shared with me throughout the period
of the study, not forgetting the time he sacrificed for me out of his tight schedules to supervise
my work.
My sincere gratitude goes to all lecturers and staff of Kyambogo University especially the
department of Economics and Statistics for their support throughout my bachelor’s program in
general and in particular this research report. They have added to my knowledge as I pursued
my bachelors of Arts in Economics.

Special thanks go to my family that laid a strong academic foundation upon which I have been
able to reach this far. It was amidst scarcity of resources that they managed to educate me as
well as instilling important core values of hard work, persistence and determination into me.
Finally, I would like to thank everyone including my course mates and friends in particular
who contributed to this study and pray that the almighty God blesses you all thousand folds.

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 DEDICATION
This report is dedicated to my parents for the financial support towards my education.

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 LIST OF ACRONYMS AND ABBREVIATIONS
FDI: Foreign Direct Investment
MOFAs: Majority Owned Foreign Affiliates
TNCs: Transnational Companies or Corporations
LDCs: Least Developed Countries
REER: Real Effective Exchange Rate
INF_CPI: Inflation, Consumer price index
RINR: Real Interest Rate

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 TABLE OF CONTENTS

DECLARATION...................................................................................................................i
APPROVAL.........................................................................................................................ii
ACKNOWLEDGEMENT...................................................................................................iii
DEDICATION......................................................................................................................iv
LIST OF ACRONYMS AND ABBREVIATIONS............................................................v
TABLE OF CONTENTS....................................................................................................vi
LIST OF TABLES...............................................................................................................ix
LIST OF FIGURES..............................................................................................................x
ABSTRACT.........................................................................................................................xi
CHAPTER ONE...................................................................................................................1
INTRODUCTION................................................................................................................1
1.1 Back ground of the study..................................................................................................1
1.2 Problem statement............................................................................................................2
1.3 General objective..............................................................................................................3
1.3.1 Specific objective...........................................................................................................3
1.4 Research questions............................................................................................................3
1.5 Scope of the Study............................................................................................................3
1.5.1 Content scope.................................................................................................................3
1.6 Significance of the Study..................................................................................................4
CHAPTER TWO....................................................................................................................4
LITERATURE REVIEW.......................................................................................................4
2.1 Introduction.......................................................................................................................4
2.2 Theoretical Literature.......................................................................................................5
2.3 Review of the related literature.........................................................................................5
2.3.1 The relationship between FDI and economic growth....................................................5
2.3.2 Other factors that influence economic growth...............................................................6
2.2.3 The possible strategies to overcome the challenges to effective operation of Foreign
Direct Investments in Uganda................................................................................................7
2.4 Research gaps...................................................................................................................8
CHAPTER THREE................................................................................................................8
RESEARCH METHODOLOGY...........................................................................................8

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3.0 Introduction.......................................................................................................................8
3.1 Research design................................................................................................................9
3.2 Data Type and Source....................................................................................................9
3.3 Data Analysis....................................................................................................................9
CHAPTER FOUR..............................................................................................................12
DATA ANALYSIS AND INTERPRETATIONS............................................................12
4.0 Introduction.....................................................................................................................12
4.1 Test for unit root.............................................................................................................12
4.2 Descriptive statistics.......................................................................................................17
4.2.1 Serial correlation and normality test............................................................................17
4.3 Lag length selection criteria............................................................................................18
4.4 Cointegrating test............................................................................................................19
4.5 Long run GDP per capita growth model estimates.........................................................20
4.5.1 Foreign direct investment (FDINV)............................................................................21
4.5.2 Real effective exchange rate (REER)..........................................................................21
4.5.3 Inflation, consumer prices (INF_CPI).........................................................................21
4.5.4 Real interest rate..........................................................................................................22
4.6 Vector error correction model........................................................................................22
CHAPTER FIVE..................................................................................................................24
CONCLUSION AND POLICY IMPLICATIONS..............................................................24
5.0 Introduction.....................................................................................................................24
5.1 Summary of findings......................................................................................................24
5.2 Policy recommendations.................................................................................................25
5.2.1 Trade liberalization policy...........................................................................................25
5.2.2 Monetary policy...........................................................................................................25
5.2.3 Exchange rate policy....................................................................................................25
5.3 Limitations of the study..................................................................................................26
REFERENCES.....................................................................................................................27
Appendix 1. Data used..........................................................................................................29
Appendix 3. Granger causality.............................................................................................30

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 LIST OF TABLES
Table 1: Results for Unit root test of Economic growth (GDP per capita growth)..................................14
Table 4.2: Results for Unit root test of inflation, consumer prices...........................................................15
Table 4.3: Results for Unit root test of real effective exchange rate........................................................16
Table 4.4: Results for Unit root test of foreign direct investment (% of GDP)........................................17
Table 4.5: Results for Unit root test of real interest rate...........................................................................18
Table 4.6: Jarque-Bera test for normality.................................................................................................20
Table 4.7: Brausch-godfrey LM tests for serial correlation......................................................................20
Table 4.8: VAR lag order selection criterion............................................................................................21
Table 4.9: Johansen Cointegrating test using trace test statistics.............................................................21
Table 4.10: Johansen Cointegrating test using Maximum Eigen value statistics.....................................22
Table 11: vector error correction model estimates...................................................................................24

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 LIST OF FIGURES
Figure 4.1: line plots of GDP Per capita growth................................................................................18
Figure 4.2: line plots of inflation, consumer prices...........................................................................19
Figure 4.3: line plots of real effective exchange rate.........................................................................20
Figure 4.4: line plots of foreign direct investment (% of GDP)........................................................21

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 ABSTRACT
The study was based on the impact of foreign direct investment (FDI) on economic growth:
a case study of Uganda. The researcher used statistical software of Eviews 11 student
version for the analysis of the macroeconomic variables affecting Uganda’s economic
growth. The main objective of this study was to examine the major macroeconomic
determinants of economic growth in Uganda between the periods 1990 and 2019 applying
the Johansen method of cointegration. All the variables are integrated at first order except
real effective exchange rate as a result the Johansen's cointegration approach was used. The
study found out that foreign direct investment (% of GDP), inflation (consumer prices) and
real interest rate had a positive effect on growth in real gross domestic product per capita
while real effective exchange rate has a negative effect on per capita growth in gross
domestic product. In the long run, real effective exchange rate and real interest rate are the
significant determinants of growth in real gross domestic product per capita in Uganda. In
the short run, inflation (consumer prices) and real interest rate turned to be statistically
significant determinants of growth in real gross domestic product per capita. Based on the
findings, the following policy recommendations are made:
The Bank of Uganda should make use of monetary policy to stimulate the economy
through increased aggregate demand due to the positive relationship between inflation and
gross domestic product per capita growth. Since there is a positive relationship between
FDI and gross domestic product per capita growth, it is therefore recommendable that the
government of Uganda continues to attract more international capital inflow through trade
liberalization if it is to achieve its growth target of 8 percent growth rate per annum.
However the most important policy implication from the findings of negative relationship
between economic growth and exchange rate indicates that there is a need for exchange
rate policy framework that compliments the existing inflation targeting regime in Uganda.
Instead of completely liberalizing the exchange rate in the framework of inflation targeting
strategy adopted, policymakers in Uganda have to prevent the upside movements in the
exchange rate by taking into consideration its negative effect on economic growth.

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 CHAPTER ONE
INTRODUCTION
1.1 Back ground of the study
According to the International Monetary Fund (1993), Foreign Direct Investment (FDI) is
composed of a flow of capital, expertise, and technology into the host country. Formally, it
is defined as "an investment made to acquire lasting interest in enterprises operating
outside of the economy of the investor". Interested researchers, countries, and international
organizations have increasingly recognized the importance of foreign capital to growth. In
our dynamic age of privatization, liberalization, and globalization, FDI has emerged as an
important form of international capital flow.

Foreign Direct Investments (FDIs) are huge investments which aim at opening up income-
generating assets in more than one country through branches or their Majority Owned
Foreign Affiliates (MOFAs). They are also known as Transnational Companies or
Corporations (TNCs). An FDI engages itself in the production of goods or services outside
the country of its origin. By opening up income generating assets in more than one country,
it makes its presence felt in the global market. It has been estimated that around a quarter of
the world economy is being controlled by the big FDIs. The combined sales of these FDIs
are estimated to be much higher than the combined worth of economies of around 182
countries. The FDI’s, because of their huge resources and international presence, are able
to attract up desires for their products in the minds of the people in the country of their
marketing base. (Lipsey, 2002)

According to (UNCTAD, 2006), the concept of FDIs is characterized by their huge assets.
The principal decisions taken by the investment take into account their global market. The
emergence of the FDIs has led to the monopolization of the markets. Production and
investment have become global as a result of which economic activities pertaining to
production; investment and trade are being conducted by the FDI’s through their branches
or firms in the different countries. Inter-firm transactions have led to the concentration of
economic power across the countries. Initially, the development of the FDIs was through
'creeping increment'. Slowly, but steadily, the FDIs have established their subsidiaries
beyond their country of origin, in developed and underdeveloped countries. In the same
vein, the FDI’s also aid in the transfer of resources from the host country to the country of
its operations which includes technical expertise, equipment, managerial and marketing

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skills, among others. (Greenaway, 2004)

According to Lutz et al. (2003), FDIs are vital in the growth cycle of any economy as it
help to initiate development processes in several underdeveloped countries through the
transfer of capital and technology. To establish a proper base in a foreign country, the
investment in labor, raw materials, advertising and marketing should be done. This helps
the underdeveloped countries to develop their resources. The FDIs help in the development
of human resource generates further employment and also help to transfer sophisticated
western technologies to the underdeveloped countries. The technological expertise,
advanced production skills and use of local labor in the units facilitate transfer of
technology to those countries. Through Research and Development, the FDIs develop
products which are superior in all respects to those which are indigenously produced by the
host countries. This induces the indigenous industries to brace up for competition and
encourages them to develop superior products. The FDIs, thereby, end the domestic
monopoly of the indigenous industries. The FDIs, apart from the transfer of technology for
production, sometimes provide marketing services for the export of indigenous products
manufactured by the host countries. Exports generate foreign exchange which helps the
host country in growing and developing its economy.

Uganda is increasingly becoming a large recipient of foreign Direct Investments (FDIs) in

Sub-Saharan Africa. In 2010/11 Uganda was the largest recipient of FDI in Sub-Saharan
Africa. The country received 1.7 billion dollars, equivalent to about four trillion shillings,
worth of investments from the private sector, both foreign and domestic. The figures
further show that between 2005 and 2010, foreign direct investment inflows were rated at
17 percent which is a very significant rate (UIA, 2011). In the financial year 2011/2012, the
country further received inflows totaling to 1.8 billion dollars, equivalent to 4.6 trillion
shillings. The inflows were mainly through foreign direct investments and portfolio
investments (Bank of Uganda, 2013). This increase in FDI has been attributed to the
country’s attractiveness to liberal FDI norms like the allowance of complete foreign
ownership of investments, tax holidays and incentives. Therefore, the recipient countries
must understand how to effectively manage this FDI such that their contribution to
economic grow and development is enhanced as expected.
1.2 Problem statement
Uganda is one of the recipients of Foreign Direct Investments (FDIs) in Sub-Saharan
2
Africa. FDIs have helped develop technologically advanced production skills and provided
marketing services for the export of indigenous products manufactured. These exports have
generated foreign exchange which has helped Uganda in growing and developing its
economy. Despite all the above positives that FDI has had towards the growth and
development of the economy of Uganda, there are numerous challenges that Foreign Direct
Investments are experiencing like conflict of interest and political interference. These have
affected the effective performance of the investments towards the development of the
economy and unless their impact on growth and development is understood then their role
was underplayed. It is against this background that the study seeks to investigate the impact
of foreign direct investment on the economic growth of Uganda.
1.3 General objective
The study is meant to investigate the impact of foreign direct investment on the economic
growth of Uganda
1.3.1 Specific objective
i. To examine the relationship between FDI and economic growth
ii. To identify other factors that influence economic growth
iii. To identify the possible strategies to overcome the challenges to effective operation
of Foreign Direct Investments in Uganda.
1.4 Research questions
i. What is the relationship between FDI and economic growth?
ii. What are other factors that influence economic growth?
iii. What are the possible strategies to overcome the challenges to effective operation of
Foreign Direct Investments in Uganda?

1.5 Scope of the Study

1.5.1 Content scope
The study focused on the impact of Foreign Direct Investment on economic growth in
Uganda. The study was guided by the following objectives; to examine the relationship
between FDI and economic growth, to identify other factors that influence economic
growth and to identify the possible strategies to overcome the challenges to effective
operation of Foreign Direct Investments in Uganda.
1.5.2 Geographical Scope
Geographically, the study was carried out in Uganda

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1.5.3 Time Scope
The period of analysis of the study was 1990 to 2020. This is because the said period has
one of the significant inflows of FDI into the Ugandan economy. Therefore this time range
is suitable for arriving at correct conclusions.
1.6 Significance of the Study
The study may help policy makers especially government to realize the importance of
Foreign Direct Investments. As a result the government may come up with several policy
strategies so as to ensure and maintain their existence in not only the area but the country at
large.
This study may also help future academicians and researchers in related and similar fields
since the study may generate more information about FDI in Uganda and therefore will add
to the exiting body of information about the FDI.

The study may also enable the researcher to acquire skills in data collection presentation
and analysis for future researches.

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 CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
This section reviews past research with the purpose of evaluating the impact of foreign
direct investment on the economic growth and development of Uganda. Past work in this
area has explored the concept of FDI, the impact of their activities on economic growth and
development, the challenges encountered by foreign direct investment and the possible
strategies to overcome the challenges faced by FDIs.
2.2 Theoretical Literature
The Solow-swan model

According to the Solow model, “the accumulation of physical capital cannot account for
either the vast growth over time in output per person or the vast geographical differences in
output per person” Romer (1996). This simply means that, capital and labor are not
determinants of economic growth. The Solow model demonstrates convincingly that
growth is not derived from capital or labor but from technological advances. However, the
model fails to explain what generates technological progress. In other words, it identifies
what can potentially cause growth, but since it treats technology as random or exogenous, it
essentially fails to model the very cause of the economic growth which it identifies. This is
essentially why the model is only a starting point to analyzing determinants of economic
growth. If one seeks to investigate what initiates and sustains long term growth-there is
need to go beyond this model.
2.3 Review of the related literature
2.3.1 The relationship between FDI and economic growth
According to Seetanah, et al (2015) the economic impact of FDI remains more contentious
in empirical than in theoretical studies. While many studies observe positive impacts of
FDI on economic growth, others also reported a negative relationship and among the main
reasons for this controversy remain data insufficiency and methodological flaws.
Curiously, the empirical evidence of these benefits both at the firm level and at the national
level remains ambiguous. The majority of studies, however, conclude that FDI contributes

5
to total productivity and economic growth.
De Gregorio (2013), while contributing to the debate on the importance of FDI, notes that
FDI allows a country to bring in technologies and knowledge that are not readily available
to domestic investors, and in this way increases productivity growth throughout the
economy. Earlier works by De Gregorio (2015) which analyzed a panel of Latin American
countries in the period 1950-1985, the results suggested a positive and significant impact of
FDI on economic growth. In addition the study showed that the productivity of FDI was
higher than the productivity of domestic investment.
Similarly, Campos and Kinoshita (2021) investigated the effects of FDI on 25 transitional
economies of the former Soviet Bloc. Their results concurred with those of Borensztein et
al (1998), indicating that FDI is a significant factor in economic growth. Dees (1998)
submits that FDI has been important in explaining China’s economic growth, while De
Mello (1997) presents a positive correlation for selected Latin American countries.
Nyatepe-Coo (1998) also assessed the contributions of FDI to economic growth in selected
countries in Southeast Asia, Latin America and Sub-Saharan Africa covering the period
1963-1992 following the work of Borensztein et al., (1998). The authors reported that FDI
did promote economic growth in the majority of the 12 countries examined.
2.3.2 Other factors that influence economic growth
Exchange Rate: An exchange rate is the rate at which one currency was exchanged for
another. It is also regarded as the value of one country’s currency in relation to another
currency. For example, an interbank exchange rate of 114 Japanese yen to the United States
dollar means that ¥114 was exchanged for each US$1 or that US$1 was exchanged for each
¥114. In this case it is said that the price of a dollar in relation to yen is ¥114, or
equivalently that the price of a yen in relation to dollars is$1/114. Exchange rates are
determined in the foreign exchange market, which is open to a wide range of different
types of buyers and sellers, and where currency trading is continuous: 24 hours a day
except weekends, i.e. trading from 20:15 GMT on Sunday until 22:00 GMT Friday. The
spot exchange rate refers to the current exchange rate. The forward exchange rate refers to
an exchange rate that is quoted and traded today but for delivery and payment on a specific
future date.
In 1986, the Structural Adjustment Programme (SAP) brought about the foreign exchange
market deregulation. The deregulation process introduced market determined and managed
floating rate regime. Prior to the implementation of this program, Nigeria operated a fixed
6
exchange rate regime, sustained by exchange control regulations that created major
economic problems till date. Most of the industries in Nigeria depend solely on importation
of natural resources, basic materials and finished goods from foreign countries, the CBN
usually interfere in the foreign exchange market through its monetary policies and
operations in the money market to tilt the exchange rate variability in the desired path such
that it raises the competitiveness of the domestic economy. Today exchange rate in Nigeria
is determined through the instrument of efficient resource allocation between any
interacting economies by the means of import and export (BOP) which invariably affect the
demand of the country’s currency. Nigerian as an import dependent country was seriously
affected by the deregulation exercise. The value of naira depreciates as a result of high
degree of currency risk; recurrent changes in exchange rate and inflation.
Inflation
Inflation is the rate at which the general level of prices for goods and services is rising and
consequently, the purchasing power of currency is falling. Nikita Dutta (2015) defines
inflation means a reduction in the value of money; in other words, a rise in general price
levels. An increase in money supply compared to the production in a country leads to a
rise in the average price of goods and services because of the increased demand. Inflation
can also be caused by higher costs being charged on to the consumer. These can be raw
material costs or production costs which have risen but could also be higher tax rates.
These prices rises cause the value of money to fall. You can therefore buy less with the
same amount of money. But this does not need to have an immediate effect on purchasing
power.
Nikita Dutta (2015) argues that both low and high inflation have consequences on the
economy. Most countries always strive for an inflation rate of around 2 to 3 percent per
year. This kind of low inflation is beneficial for the economy. It encourages consumers to
buy goods and services. In case they delay purchasing the goods and services, this will
mean that they would have to pay more for the same product. With low inflation, interest
rate is low which encourages more borrowing of money due to low interest rates. However
high inflation is less beneficial. It can be less appealing for foreign investors to invest in the
country concerned. High inflation therefore often has a harmful effect on economic growth.
If inflation gets too high, a country’s central bank will often intervene by raising its interest
rates and thus discourage the creation of money.
2.2.3 The possible strategies to overcome the challenges to effective operation of
7
Foreign Direct Investments in Uganda.
Collaboration with Media
According to Gerhard (2018), Foreign Direct Investments always change the mindset of the
people or the host country through Collaboration with Media and this greatly improve their
operations in these countries in order to widen their activities. In recent times, the
emergence of media giants with increasing power and influence over human minds, and
their collaboration with other Foreign Direct Investments, driven by mutual interest of the
two, has profoundly intensified Foreign Direct Investment’s influence. The process has
evolved and developed with modern ways and means that have added to its significance as
well as its speed, scope and quantum. Furthermore, media plays a descriptive role in
informing the people about the goods and services both persuasively and informatively in
their scope of operations
Inducing Buyers and Capturing the Market
Foreign Direct Investments capture the market using a variety of strategies and tools,
including social and market research, opinion building, developing interest groups,
lobbying, sponsorship, etc. The above factors play an important role in this campaign
(Lazarus, 2021). Therefore, Foreign Direct Investments through multinational corporations
have embarked on using the above factors in order to widen their market for example
through market research, these companies comes to realize the market gap, how to close
the gap and also to find out the competitive edge in the market such that suitable decisions
and pricing strategy is are taken to induce buyers and in the due course capturing the
market. This comes after realizing that many buyers are ignorant about the market forces of
demand and supply, some do not where to find cheaper sources of goods and services so
through opinion building and developing interest groups, a larger market share is captured.
2.4 Research gaps
Existing empirical evidence, in contrast with more settled theoretical evidence, have shown
mixed results about the relationship between FDI and economic growth of the host
countries. Several reasons can be advanced to explain such disparity of empirical results.
To mention a few, first, tests are traditionally conducted using data sets usually belonging
to heterogeneous groups of countries. Second, previous studies have used a variety of
theoretical models. Third, empirical studies have usually implemented a number of
different econometric techniques in testing and estimation. Available evidence for
developed countries seems to support the idea that FDI is 29 positively related to economic
8
growth. For the case of developing countries, FDI’s impact on growth remains ambiguous
with some finding positive spillovers while others reporting limited evidence.

CHAPTER THREE
RESEARCH METHODOLOGY
3.0 Introduction
This chapter presents research design, data type and source, variable and measurement,
data analysis, anticipated limitation of the study.
3.1 Research design
The study employed entirely a quantitative research for the assessment of the secondary
data for scientific assessment and determining the conclusions for objectives. The design is
a quasi-experiment intended to determine the influence of independent variable on the
dependent variable. The fundamental basis for the design is the hypothesis for ascertaining
the influence to another and this is done by the assessment of the control environment.
3.2 Data Type and Source
The study used secondary time series data for the period 1990 to 2020 from World Bank
economic indicators. It will also involve the use of documentary review such as books, and
Bank of Uganda reports, journals, magazines, and internet sources.
3.3 Data Analysis
Data analysis was done using E-views software and linear regression modeling which will
have FDIs as the independent variable and economic growth the dependent variable as for a
given period of time. The regression was based on the hypothesis that:
Ho: Foreign Direct Investment does not influence economic growth
HA: Foreign Direct Investment influences economic growth
3.4 Model Specification

Macroeconomic theory has identified various factors that influence the growth of a country
from the classical, neoclassical and the new growth theories. These factors include natural
resources, investment, human capital, innovation, technology, economic policies,
governmental factors, foreign aid, trade openness, institutional framework, foreign direct
investment, political factors, socio-cultural factors, geography, demography and many
others. In order to examine the empirical evidence of the macroeconomic determinants of
9
economic growth in Uganda, the study shall consider these factors. Following broadly the
approach adopted in Lucas (1988), the researchers specify the economic growth function
for Uganda as follows: Real (GDP) per capita growth is a function of foreign direct
investment, inflation, exchange rate and interest rate.
It is mathematically expressed as follows:

GDP=f(FDINV,INF,REEX,RINR)… (1)

Thus, our growth function becomes

GDPt=β0+β1FDINVt+β2INFLt+β3REERt+β4RINRt+εt……………………………… (2)

The above multivariate function was estimated using johansen cointegrating approach since
Sims (1980) argues that most macroeconomic time series variables are endogenous, that is,
they influence each other. He also argues that the variables in the current period depend on
the previous value hence monetary policy variables have to be modeled with lags.
3.5 Description of variables in the multivariate function.

GDP=Gross domestic product per capita or GDP per capita, is a measure of a country's
economic output that accounts for its number of people. It divides the country's gross
domestic product by its total population.
FDINV=Foreign direct investment which is an investment in the form of a controlling
ownership in a business in one country by an entity based in another country measured in
current US$.
REEX=effective exchange rate which is an index that describes the strength of a currency
relative to a basket of other widely used currencies especially US$. The real effective
exchange rate (REER) is the weighted average of a country's currency in relation to an
index or basket of other major currencies. The weights are determined by comparing the
relative trade balance of a country's currency against each country within the index.
INFL=Inflation rate which is the percentage at which is devalued during a period. This
devaluation is evident in the fact that the consumer price index (CPI) increases during this
period.
RINR=A real interest rate is an interest rate that has been adjusted to remove the effects of
inflation to reflect the real cost of funds to the borrower and the real yield to the lender or
to an investor. The real interest rate reflects the rate of time-preference for current goods
over future goods. The real interest rate of an investment is calculated as the difference

10
between the nominal interest rate and the inflation rate:
Real Interest Rate = Nominal Interest Rate - Inflation (Expected or Actual) t=time lag
εt=stochastic term/white noise/disturbance error term which is assumed to be normally
distributed and independently distributed with zero mean µi and constant variance, δ2
which captures all other explanatory variables which influence economic growth but are
not captured in this model.
Β0, β1, β2, β3, β4 are the partial elasticities of GDP (economic growth) with respect to
FDIt, INFLt, REEXt and RINRt respectively.
The error correction term lagged one period, which integrates short run dynamics in the
long-run growth function is shown below through the error correction model (ECM):

11
 CHAPTER FOUR CHAPTER
DATA ANALYSIS AND INTERPRETATIONS

4.0 Introduction
This chapter presents the econometric results that are used to examine the hypothesized
macroeconomic determinants of economic growth. Economic and statistical interpretations
and implications of the results are given.
4.1 Test for unit root.
According to Granger et al (1974), econometric estimations employing time series data
encounter the danger of generating spurious results. If the variables are non-stationary,
resulting into estimates that are biased and inefficient. It is therefore necessary to test for
the presence of any trends or persistence within data that may violate the Classical Linear
Model (CLM) assumptions on this model. In this study we used the Augmented Dickey-
Fuller (ADF).
Unit root test
Ho: Economic growth (GDP per capita growth) has a unit root
Ha: Economic growth (GDP per capita growth) does not have a unit root
Table 1: Results for Unit root test of Economic growth (GDP per capita growth)

Null Hypothesis: GDP_PCAP_ has a

unit root Exogenous: Constant, Linear
Trend
Lag Length: 1 (Fixed)
t-Statist Prob.*
Augmented Dickey-Fuller test statistic -3.3507 0.0789
Test critical values: 1% level -4.324
5% level -3.5806
10% level -3.2253
Source: Eviews 11 student version output
Since the ADF test absolute value is less than the absolute of critical value at 5% level, the
null hypothesis is accepted thus economic growth(GDP per capita growth) have a unit root
that is the series are non-stationary.

12
 Figure 4.1: line plots of GDP Per capita growth.

GDP.PCAP.
10

-2
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18

There is an upward and downward competing trend in GDP per capita growth in Uganda. The upward
trends can be attributed to restoration of economic fundamentals by then and downward trends are
attributed to a fall in economic fundamentals. The series have a random walk (non- stochastic
process) since their mean is non zero at levels.
Unit root test for inflation, consumer prices
Ho: inflation, consumer prices have a unit
root
Ha: inflation, consumer prices do not have a unit root
Table 4.2: Results for Unit root test of inflation, consumer prices

Null Hypothesis: INF_CPI has a unit root

Exogenous: Constant, Linear Trend
Lag Length: 1 (Fixed)
t-Statistic Prob.*
Augmented Dickey-Fuller test statistic -2.337177 0.4
Test critical values: 1% level -4.394309
5% level -3.612199
10% level -3.243079

Source: Eviews 11 student version output, 2023

The Augmented Dickey-fuller test statistic -2.3372 shows that its absolute value is less than
5% critical value and also the p-value (0.4) is greater than 0.05 critical level. Therefore we
fail to reject the null hypothesis and conclude that the inflation, consumer prices has a unit
root or is non- stationary at levels.

13
 Figure 4.2: line plots of inflation, consumer prices

INF.CPI
20

16

12

-4
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18

Uganda has experienced an upward and down competing trends of inflation. The sharp rises can
be attributed to the increase in global prices by then. However since 2011, inflation has been
dropping. The series have a random walk (non-stochastic) process since their mean is non-zero at
first levels.
Unit root test for real effective exchange rate
Ho: real effective exchange rate has a unit root
Ha: Real effective exchange rate does not have a unit root
Table 4.3: Results for Unit root test of real effective exchange rate

Null Hypothesis: REER has a unit root

Exogenous: Constant, Linear Trend
Lag Length: 1 (Fixed)
t-Statistic Prob.*
Augmented Dickey-Fuller test statistic -5.088003 0.0017
Test critical values: 1% level -4.323979
5% level -3.580622
10% level -3.225334

Source: Eviews 11 student version output, 2023

The augmented dickey-duller test statistic -5.0880 shows that its absolute value is greater than
5% critical value and also the p-value (0.0017) is less than 0.05 critical level. Therefore we reject
the null hypothesis and conclude that the variable real effective exchange rate is stationary or has
no unit root at levels.

14
 Figure 4.3: line plots of real effective exchange rate.

REER
280

240

200

160

120

80
90 92 94
96 98 00 02 04 06 08 10 12 14 16 18

The real effective exchange rate has experienced a sharp decrease from 1990 to 1992; however there was
slight instabilities from 1992 to 2019. The series has a random walk (non-stochastic) process since their
mean is non-zero at first levels.
Unit root test for foreign direct investment (% of GDP) Ho: foreign direct investment (% of GDP)
has a unit root
Ha: foreign direct investment (% of GDP) does not have a unit root
Table 4.4: Results for Unit root test of foreign direct investment (% of GDP)

Null Hypothesis: FDINV has a unit root Exogenous: Constant, Linear Trend Lag Length: 1 (Fixed)
t-Statistic Prob.*
Augmented Dickey-Fuller test statistic -0.860586 0.9469
Test critical values: 1% level -4.323979
5% level -3.580622
10% level -3.225334
Source: Eviews 11 student version output, 2023
The Augmented Dickey-fuller test statistic -0.8606 shows that its absolute value is less than 5% critical
value and also the p-value (0.9469) is greater than 0.05 critical levels. Therefore we fail to reject the null
hypothesis and conclude that the foreign direct investment has a unit root or is non- stationary at levels.

15
 Figure 4.4: line plots of foreign direct investment (% of GDP)

FDINV
7
6
5
4
3
2
1
0
-1
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18

Uganda has experienced an upward and down competing trends of foreign direct investments.
The sharp rise in 2005 and 2010 can be attributed to the increase in government divestiture and
increased remittances by non- resident by then. However, the series have a random walk (non-
stochastic) process since their mean is non-zero at levels.
Unit root test for real interest rate
Ho: real interest rate has a unit root (non-stationary)
Ha: real interest rate does not have a unit root (stationary)
Table 4.5: Results
for Unit root test of real interest rate
Null Hypothesis: RINR has a unit root
Exogenous: Constant, Linear Trend Lag Length: 1 (Fixed)
t-Statist Prob.*
Augmented Dickey-Fuller test statistic -2.5306 0.3119
Test critical values: 1% level -4.3943
5% level -3.6122
10% level -3.2431

Source: Eviews 11 student version output, 2023

The Augmented Dickey-fuller test statistic -2.5306 shows that its absolute value is less than 5%
critical value and also the p-value (0.3119) is greater than 0.05 critical level. Therefore we fail to
reject the null hypothesis and conclude that the real interest rate has a unit root or is non-
stationary at levels.

4.2 Descriptive statistics

16
 GDP_PCAP_ FDINV INF_CPI REER RINR
Mean 2.97161 2.899648 6.35888 117.8348 11.96042
Median 2.772826 2.707969 5.741872 107.1369 13.6792
Maximum 8.035644 6.479821 16.56435 239.634 22.99559
Minimum -0.145857 -0.137301 -0.287509 90.17544 -9.749413
Std. Dev. 2.090449 1.792126 4.079894 30.3905 8.041632
Skewness 0.562602 0.026894 0.628907 2.467525 -1.075351
Kurtosis 2.690125 2.623525 3.040349 9.869005 3.711782
Jarque-Bera 1.702633 0.180783 1.715701 89.42244 5.987513
Probability 0.426853 0.913573 0.424073 0 0.050099
Sum 89.1483 86.98944 165.3309 3535.045 334.8919
Sum Sq. Dev. 126.7293 93.13975 416.1385 26783.89 1746.032
Observations 30 30 26 30 28

Source: Eviews 11 student version output, 2023

The summary statistics above reveal some key characteristics of the variables. The variables with
the highest number of observations are GDP per capita growth, foreign direct investment (% of
GDP) and real effective exchange rates. They have 30 observations while the variable with the
least number of observations has only 26 observations which is inflation, consumer prices
followed by real interest rate with 28 observations. The discrepancy is owing to the fact that
there was limited data on inflation and real interest rate in Uganda. In terms of skewness, most of
the variables are positively skewered but within an acceptable range.

Almost all the variables have non-zero standard deviations with a maximum from real interest
rate and the minimum from direct investment. This considerable variation in all the variables
translates into more efficient estimates. However, the Jarque-Bera normality test indicated that
all the variables are normally distributed because their Jarque-Bera probability values are greater
than 0.05.
4.2.1 Serial correlation and normality test.
The Jarque-Bera (1987) test is used to test for the normality of the residuals. The test specifies
the null hypothesis that the residual are multivariate normal. Therefore, rejection of the null-
hypothesis implies that the residuals are not normally distributed. In this study, Jarque-Bera test
is conducted and the result is presented in Table below.

Table 4.6: Jarque-Bera test for normality

Component Jarque-Bera df Prob.

17
 1 0.502942 2 0.7777
2 0.126011 2 0.9389
3 5.397536 2 0.0673
4 1.594298 2 0.4506
5 8.56753 2 0.0138
Joint 16.18832 10 0.0944

Source: Eviews 11 student version output, 2023

Basing on P-value in table 4.4.1 above, since Jarque-Bera p-values are greater than 0.05, then we fail to
reject the null hypothesis that the residuals are multivariate normal at 5 percent level of significance. This
implies that the model estimated is correctly specified. On the other hand, Breusch-Godfrey (1978) LM
test is used to detect the presence of serial correlation in the residuals. The test is based on the null-
hypothesis that there is no serial correlation up to a certain lag order h. The test is conducted up to lag
order one since lag order one was selected by most criterions in lag selection criterion. The result is
presented in Table below.
Table 4.7: Brausch-godfrey LM tests for serial correlation.

Null hypothesis: No serial correlation at lag h

Lag LRE* stat df Prob. Rao F-stat Df Prob.
1 23.71959 25 0.5356 0.93157 (25, 34.9) 0.567
Source: Eviews 11 student version output, 2023
Basing on the probability value in table 4.7 above, we fail to reject the null hypothesis of no
serial correlation at lag 1 at 5 percent levels of significance since the p-values (0.567) is greater
than 0.05. The residual (1978) LM test for serial correlation therefore shows that there is no
serial correlation in the residuals at lag order 1. This means that, all the estimated coefficients in
the model are efficient at lag order 1.
4.3 Lag length selection criteria
Before the model is estimated, it is important that the correct lag length be selected. The lag
should be that which accounts for serial correlation in the residuals and minimizes lost in degrees
of freedom. Table 4.8 below shows the results obtained from the lag order selection criteria.

Table 4.8: VAR lag order selection criterion

Lag LogL LR FPE AIC SC HQ

18
 0 -318.5893 NA 1142911 28.1382 28.38505 28.20028
1 -265.4559 78.54509* 105255.4* 25.69181* 27.17289* 26.06430*
2 -240.5743 25.96336 152877 25.70211 28.41743 26.38501
Source: Eviews 11 student version output, 2023
Results in table 4.8 show that the sequential modified LR test statistic (LR), Final prediction
error (FPE), Akaike information criterion (AIC), Schwarz information criteria (SC) and Hannan-
Quinn information criterion (HQ) selected lag length 1. This study estimates VAR of lag order 1
as suggested by all criterions.
4.4 Cointegrating test
Once variables have been classified as integrated of order I (0), I (1), I (2) and so on it is possible
to set up models that lead to stationary relations among the variables, and where standard
inference is possible. Testing for co-integration is a necessary step to modeling meaningful
empirical relationships. If variables have different trends processes, they cannot stay in fixed
long-run relation to each other, implying that you cannot model the long-run, and there is usually
no valid basis for inference based on standard distributions. If co-integration does not exist at
levels, it is necessary to continue to work with variables in differences instead.
The method used in this study is known as the Johansen (1991) procedure to determine the
number of Cointegrating relations in a vector of variables that are integrated of the different
order. Given the result of the unit root tests above; the numbers of Cointegrating vectors are
tested on the variables; GDP_PCAP, FDI, REEX, RINR and INFL_CPI using Maximum Eigen
value and Trace Statistics. The results of the Cointegrating tests are given in Tables below.
Table 4.9: Johansen Cointegrating test using trace test statistics

Hypothesized No. of CE(s) Eigenvalue Trace Statistic 0.05 Critical value Prob.**
None * 0.71339 75.80179 69.81889 0.0154
At most 1 0.658492 47.06021 47.85613 0.0593
At most 2 0.488373 22.34937 29.79707 0.2795
At most 3 0.259312 6.935716 15.49471 0.5851
At most 4 0.001377 0.031686 3.841465 0.8587

Source: Eviews 11 student version output, 2023.

Table 4.10: Johansen Cointegrating test using Maximum Eigen value statistics

Hypothesized No. of CE(s) Eigenvalue Max-Eigen Statistic 0.05 Critical Value Prob.**
None 0.71339 28.74158 33.87687 0.1814
At most 1 0.658492 24.71084 27.58434 0.1118
At most 2 0.488373 15.41366 21.13162 0.261
At most 3 0.259312 6.90403 14.2646 0.5006
19
 At most 4 0.001377 0.031686 3.841465 0.8587

Source: Eviews 11 student version output, 2023

The trace statistics test indicates that there is a Cointegrating equation at 5% critical level in table
and the maximum Eigen value test statistics in table 5 indicate that there is no Cointegrating
relationship among variables at 5% level. Since the trace statistics is more superior to the
maximum Eigen values in table 4.6.2. This study relies on the trace statistics. It is therefore
convenient to run restricted VAR (vector error correction model) other than unrestricted vector
autoregressive model (VAR).

4.5 Long run GDP per capita growth model estimates

Vector error correction estimates Date: 01/31/2023 Time: 15:02 Sample (adjusted): 1996-2018
Included observations: 23 after adjustments Standard errors in () & t-statistics in []
Cointegrating Eq GDP_PCAP_(-1) C FDINV(-1) REER(-1) INF_CPI(-1) RINR(-1)
CointEq1 1 0.353798 0.178457 -0.074245 0.065831 0.278868
(-027193) (-0.01808) (-0.14107) (-0.07963)
[0.65627] [-4.10537] [0.46664] [3.50205]
Source: Eviews 11 student version output, 2023.
4.5.1 Foreign direct investment (FDINV)
As shown by the result of the long-run relationship between the dependent variable and the
independent variables, there exist a positive relationship between gross domestic product (GDP)
which is the economic growth and Foreign Direct Investment (FDI). It means that a unit increase
in foreign direct investment (FDI) by one percent will lead to a corresponding increase in
Economic growth by 17.85% ceteris Paribas. This relationship is statistically insignificant since
the tcal=0.65626 is less than ttab=2.101. Using the t test criteria of the long run equation for
model (that is tcal= 0.65626) is less than ttab=2.101 @ df 28), we fail to reject the null hypothesis
and conclude that the estimate foreign direct investments is statistically insignificant at the 5%
level of significance. This implies that foreign direct investment has insignificant effect on the
gross domestic product in Uganda in the long run.
4.5.2 Real effective exchange rate (REER)
There exist a negative relationship between gross domestic product (GDP) which is the
economic growth and real effective exchange rate (REER). It means that a unit increase in real
effective exchange rate (REER) by one percent will lead to a corresponding decrease in
Economic growth by 7.4% holding other factors constant. This relationship is statistically
significant since the tcal=4.1053 is greater than ttab=2.101. Using the t test criteria of the long run
equation for model (that is tcal= 4.10537) is greater than ttab=2.101 @ df 28), we reject the null
hypothesis and conclude that the estimate real effective exchange rate is statistically significant

20
at the 5% level of significance. This implies that real effective exchange rate has a significant
effect on the gross domestic product in Uganda.
4.5.3 Inflation, consumer prices (INF_CPI).
There exist a positive relationship between gross domestic product (GDP) which is the economic
growth and inflation rate (INF_CPI). It means that a unit increase in inflation, consumer prices
(INF_CPI) by one percent will lead to a corresponding increase in Economic growth by6.58%
holding other factors constant. This relationship is statistically insignificant since the t cal=0.4664
is less than ttab=2.101. Using the t test criteria of the long run equation for model (that is tcal=
0.4664) is less than ttab=2.101 @ df 28), we fail to reject the null hypothesis and conclude that
the estimate inflation, consumer prices is statistically insignificant at the 5% level of
significance. This implies that inflation, consumer prices has insignificant effect on the gross
domestic product in Uganda.

21
4.5.4 Real interest rate
There exist a positive relationship between gross domestic product (GDP) which is the
economic growth and real interest rate. It means that a unit increase in real interest rate by
one percent will lead to a corresponding increase in Economic growth by6.58% holding
other factors constant. This relationship is statistically significant since the tcal=3.50205 is
greater than ttab=2.101. Using the t test criteria of the long run equation for model that is
(tcal= 3.50205) is greater than (ttab=2.101 @ df 28), we fail to reject the null hypothesis and
conclude that the estimate real interest rate is statistically significant at the 5% level of
significance. This implies that real interest rate has significant effect on the gross domestic
product in Uganda.
4.6 Vector error correction model.
Vector Error Correction Models (VECM) directly estimates the speed at which a
dependent variable returns to equilibrium after a change in an independent variable. The
error-correction parameters in our study Et-1 has the expected negatives sign.The linkage
between co-integration and error correction models stems from the Granger representation
theorem and it states that two or more integrated time series that are co-integrated have an
error correction representation, and two or more time series that are error correcting are co-
integrated as represented by the equation below:
Yt= ρYt-1 + εt-1.
Table 11: vector error correction model estimates

Error correction: D(GDP_PCAP_) D(F D(REER) D(INF_CPI) D(RINR)

DIN
V)
CointEq1 -0.281735 0.01 1.16 1.693 -
4245 561 324 2.17
843
-0.32728 - - - -
0.13 0.99 0.479 0.94
158 35 32 577
[-0.86082] [0.1 [1.17323] [3.53278] [-230333]
082
6]
Source: Eviews 11 student version output, 2023
Table 4.11 above shows the results of estimating the vector error Correction modeling (VECM) of
our research model. The short run coefficient of GDP per capita growth (economic growth) is
negatively signed and it’s statistically insignificant since the tcal =-0.86082is less than 2.101 @ df.

22
While foreign direct investment, real effective exchange rate and Inflation, consumer prices are all
positively signed and not statistically significant except inflation, consumer prices which is
statistically significant.
The negative sign of (- 0.281735) of the error term indicates that a long-run equilibrium

23
characterized the relationship among the variables GDP_PCAP, FDINV, REER and INF_CPI. The
coefficient for error term (εt-1) - 0.281735 implies that the system corrected its previous
disequilibrium period due to positive or negative shocks in one period at an adjustment speed of
28.17 percent annually.

24
 CHAPTER FIVE
CONCLUSION AND POLICY IMPLICATIONS

5.0 Introduction
This chapter presents the conclusions, policy implications of this study, limitations of the study
and areas for further research are also given:
5.1 Summary of findings
This study used co-integration approach to investigate the macroeconomic determinants of
economic growth in Uganda. The study used annual data for a time period of 29 years from 1990
to 2019. Apart from FDI and GDP, the study incorporated three more variables that are
theoretically known to influence the economic growth in most economies. These are: real
effective exchange rates, inflation (consumer prices), and real interest rate. The empirical
analysis is based on time series econometrics. It is found in the current study that all variables;
GDP per capita growth, foreign direct investment, inflation (consumer prices) and real interest
rate turned out to be non-stationary at their levels but became stationary at their first difference
while real effective exchange rate turned to be stationary at levels. After testing for co-
integration using Johansen approach, the trace statistics test indicates that there exist a long run
and short run relationship between growth in real GDP per capita, foreign direct investment,
inflation (consumer prices), real effective exchange rates and real interest rate in Uganda.

The study finds out that in the long real effective exchange rates had a positive effect on growth
in real GDP per capita. As a result, increase in real interest rate leads to improvement in real
GDP per capita growth. However, foreign direct investment, inflation (consumer prices) and real
interest rate had negative effect on growth in real GDP per capita. Therefore, decline in these
variables will cause improvement in real GDP per capita growth. Hence, in the long run, foreign
direct investment, inflation (consumer prices) and real interest rate are insignificant determinants
of growth in real GDP per capita and real interest rate is significant determinant of growth in real
GDP per capita in Uganda. However, in the short run, there is 28.17 percentage point adjustment
taking place each year towards the long run periods. The past one year record of foreign direct
investment, real effective exchange rate, inflation (consumer prices) had a positive impact while
real interest rate had a negative impact on the growth in real GDP per capita. These impacts were
statistically significant except foreign direct investment and real effective exchange rates.
Therefore, in the short run, foreign direct investment and real effective exchange rate are

25
statistically insignificant determinants of growth in real GDP per capita in Uganda while inflation is
statistically significant determinant of growth in real GDP per capita in Uganda.
5.2 Policy recommendations
5.2.1 Trade liberalization policy
Results show that FDI inflows generate economic growth in Uganda. It is therefore
recommendable that the government of Uganda continues to attract more international capital
inflow if it is to achieve its growth target of 8 percent growth rate per annum. However as
seen earlier in Chapter two; most of the inward FDIs to Uganda are concentrated mainly in
the manufacturing and service sector and yet agricultural sector remains the backbone of
Uganda’s economy. There is no doubt that this growth is emerging mainly from the
manufacturing and service sector of the economy, with the rest of the sectors contributing
very little or negatively to economic growth; eventually the overall growth effects in the
economy remains insignificant and sluggish. The Government of Uganda through UIA
should therefore embark on sectorial allocation of FDIs with more FDIs directed to sectors
such as agriculture with greater multiplier effects in generating economic growth.
increasing foreign direct investments should be directed into strategic areas of the economy
like: energy, oil and gas, transportation and information and communication technology to
increase economic growth; and in setting up export promotion industries to increase the value
of exports thus realizing high foreign exchange earnings to stimulate more economic growth.
5.2.2 Monetary policy
The positive relationship between inflation and economic growth in the long-run suggests
that monetary policy can be employed to generate higher growth in the long- run. This
research recommends a constant money growth policy in the long-run. The Bank of Uganda
should make use of monetary policy to stimulate the economy through increased aggregate
demand. However, there is need to properly optimize the money growth policy in order to
avoid hyper-inflation. Since this research did not employ a threshold analysis on inflation and
economic growth, the estimated positive relationship between the dual may only hold at
lower levels of inflation.
5.2.3 Exchange rate policy.
The findings show that the appreciation of the local currency is negatively related to the long-run
economic growth. Thus the findings provide an econometric confirmation for the structural view,
which argues that the rise in the exchange rate causes a contraction in economic activity. This
means it is not appropriate to think that depreciation of local currency causes export-led growth in

26
Uganda which has a production structure based on the imported inputs. The most important policy
implication from the findings indicates that there is a need for exchange rate policy framework that
compliments the existing inflation targeting regime in Uganda. Instead of completely liberalizing the
exchange rate in the framework of inflation targeting strategy adopted, policymakers in Uganda have
to prevent the upside movements in the exchange rate by taking into consideration its negative effect
on economic growth. In other words, the inflation targeting regime in Uganda can only be
implemented successful in the context of a broad-based monetary policy involving a complementary
exchange rate policy.
5.3 Limitations of the study.
Data unavailability has been a major problem especially prior to 1990. The study was
intended to base the analysis on the period from 1962 up to 2019. The idea was to incorporate
the dynamics the economy have experienced since independence so as to get a more
comprehensive picture of the relationship between the variables that have been of concern in
the study.

27
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29
Appendix 1. Data used
YEARS GDP_PCAP_ FDINV INF_CPI REER RINR
1990 2.854665585 -0.137301402 239.6340205 -3.957209765
1991 2.034554528 0.030104803 175.7100169 6.66352497
1992 0.022707237 0.104988425 117.6182432 -4.106292765
1993 4.827708061 1.695421005 116.1573223
1994 3.024547331 2.210287867 10.03675988 145.2615014 13.02191888
1995 8.035643886 2.105695143 6.55014019 141.9890707 9.861413109
1996 5.718857646 2.001791578 7.191646604 142.413639 15.03424725
1997 1.90934204 2.791365385 8.169021441 149.2947502 17.72687057
1998 1.71482611 3.189155246 0.068804172 132.4942854 11.10068608
1999 4.70546848 2.337226332 5.777368987 120.643751 21.68683165
2000 -0.145857409 2.59476175 3.392023585 114.3602853 10.62161427
2001 1.732039316 2.593888371 1.865125241 111.5995133 17.33449568
2002 5.083370306 2.988527292 -0.287508512 106.8298875 22.99559284
2003 2.84705689 3.190820333 8.680476516 93.74233705 10.32903873
2004 3.15142152 3.72044058 3.72128744 97.40508538 4.339243937
2005 2.698594382 4.213615704 8.448726423 101.9709747 21.76555229
2006 7.010567028 6.479820608 7.310676136 102.1005527 15.90900435
2007 4.727295002 6.44527613 6.138510833 105.4915719 10.98062354
2008 5.023515168 5.118755092 12.05085555 109.2066257 13.2429703
2009 3.190619217 4.631929852 13.01725619 107.1112602 -9.7494134
2010 2.076684434 2.694240313 3.976552885 100 8.689191191
2011 5.718076411 4.432458062 16.56434962 94.22034295 16.44008139
2012 0.36785169 5.214905193 12.67903772 105.9370147 3.809183644
2013 0.147417013 4.45536594 4.905208757 107.1624842 18.5133798
2014 1.64290966 3.878679473 3.07570669 109.2110577 17.58095674
2015 1.751374847 2.721697434 5.589686063 105.5401378 16.7582418
2016 1.388912066 2.592662078 5.706375046 101.4877272 19.53822239
2017 0.53122079 2.690895475 5.209717059 97.78467427 14.11543767
2018 2.284504297 0.000994198 2.623975052 90.17544306 14.64647793
2019 3.072401728 0.00097583 2.86909425 92.49188235

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Appendix 3. Granger causality
Table 15. VEC Granger Causality/Block Exogeneity Wald Tests
Dependent variable: D (GDP_PCAP_)
Excluded Chi-sq df Prob.
D(INF_CPI) 1.638091 1 0.2006
D(FDINV) 0.149179 1 0.6993
D(REER) 0.344979 1 0.557
D(RINR) 2.094273 1 0.1479
All 5.564567 4 0.2341

Dependent variable: D (INF_CPI)

Excluded Chi-sq df Prob.
D(GDP_PCAP_) 2.570345 1 0.1089
D(FDINV) 4.503288 1 0.0338
D(REER) 5.123318 1 0.0236
D(RINR) 0.047747 1 0.827
All 12.49476 4 0.014

Dependent variable: D (FDINV)

Excluded Chi-sq df Prob.
D(GDP_PCAP_) 0.679005 1 0.4099
D(INF_CPI) 0.264245 1 0.6072
D(REER) 0.567615 1 0.4512
D(RINR) 10.42261 1 0.0012
All 12.04233 4 0.017

Dependent variable: D (REER)

Excluded Chi-sq df Prob.
D(GDP_PCAP_) 0.340056 1 0.5598
D(INF_CPI) 0.045809 1 0.8305
D(FDINV) 0.071409 1 0.7893
D(RINR) 0.283743 1 0.5943
All 1.390392 4 0.8459

Dependent variable: D (RINR).

Excluded Chi-sq df Prob.
D(GDP_PCAP_) 0.935169 1 0.3335
D(INF_CPI) 3.186553 1 0.0742
D(FDINV) 0.622222 1 0.4302
D(REER) 0.171473 1 0.6788
All 7.56897 4 0.1087

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