Uganda’s growth Determinants: A Test of the Relevance of the Neoclassical Growth Theory

Abstract

The purpose of this study is to investigate whether Uganda’s economic growth determinants can fully be analyzed within the framework of the neoclassical growth theory. The study uses quarterly data for the period 2007-2018. The underlying empirical models are estimated using IV-GMM in the specific-to-general modeling approach. Estimates show that unlike the factor of capital stock per worker, human capital per worker persists to be a significant factor that influences Uganda’s economic growth even when additional variables motivated by the endogenous growth theory are included in the empirical model. The factor of population growth remains theoretically plausible but reduces its strength of influence with the additional explanatory variables. The estimates suggest that the neoclassical growth model has the ability but does not fully explain growth variations in Uganda which manifests the theory’s fractional relevance. Estimates further show that other factors such as low lending interest rates, attraction of FDI and expansion of domestic credit are important enhancers for Uganda’s economic growth. Results do not support the notion of conditional convergence commonly cited in growth literature. Our point of departure from existing literature on Uganda’s growth determinants is the inclusion of productivity factors motivated by the endogenous growth proponents in the empirical model as control variables.