Foreign direct investment and its economic implications

Abstract

This thesis investigates the impact of foreign direct investment on Uganda's economy particularly economic growth from 1994 to 2023. Grounded in the several theories and determinants, the study utilises time series data from World Bank, employing an Autoregressive Distributed Lag (ARDL) model to analyse the long-run relationship between FDI and GDP growth. The empirical analysis reveals a statistically significant positive impact of FDI on Uganda's economic growth. The study finds that a 1% increase in coffee export values leads to a 0.28% increase in GDP in the long run. The research also highlights the significant positive influence of domestic investment on economic growth, while revealing a complex interplay with inflation. Diagnostic tests confirm the validity and reliability of the ARDL model, strengthening the robustness of the findings. The study underscores the crucial role of FDI as one of the drivers of economic growth in Uganda, supporting its inflow increase over the years. Based on the empirical findings, this dissertation recommends policy interventions focused on enhancing trade openness, attracting more foreign direct investment inflows, managing inflation, and improving investment climate. These strategies can attract more FDI in Uganda, contributing significantly to the long-term economic development of Uganda. This research provides valuable empirical evidence and policy insights for policymakers, industry stakeholders, and development practitioners seeking to invest in Uganda. The findings have significant implications for shaping a more prosperous future for both foreign and local investors to improve the Ugandan economy.