Time Series Bounds Approach to Foreign Direct Investment, Unemployment and Economic Growth in Uganda

Abstract

This is a causality study on Foreign Direct Investment (FDI), Unemployment and Economic growth in Uganda using time series Autoregressive Distributed Lag (ARDL) bounds approach based on FDI, unemployment rates and GDP datasets from 1993 to 2015. Curtailing levels of unemployment and simultaneously sparkling levels of economic growth are primary macroeconomic objectives of every country. This study intends to be instrumental in advising alternative policies that aim at reducing unemployment and sparkling economic growth; one of which is the attraction of FDI. Literature has no concrete premise for this hypothesis since evidences from some countries show positive results while others show negative results. Our study adopts dynamic ARDL bounds approach with efficient and successful record of undertaking empirical studies of this nature in time series. Using data series obtained from the world bank, our findings indicate no causalities between the variables considered. Therefore, there is no sufficient statistical evidence to suggest that FDI plays significant roles in reducing unemployment and sparkling economic growth. The short-run and long-run dynamics of the model do not point to any statistically significant relationships. Based on this specific country-case premise, the study recommends on the need to revitalize domestic industries and re-strategize FDI comprehensive policy frameworks to provide competitive edge to domestic firms and attract FDI in a pace consistent with the growth agenda of local industries.

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