Inflation and economic growth in Uganda

Abstract

This study sets out to examine the relationship between economic growth and inflation in Uganda for the period 1980-2020. The existence and nature of a link between inflation and economic growth has been the subject of considerable interest and debate among academicians and policy makers. The study employ secondary annual time series data for the period 1980 to2020 and uses the Autoregressive Distributed lag Model approach to examine the short and long-run relationship between economic growth and inflation and also examine the granger causality relationship between economic growth and inflation in Uganda. The main findings of the study indicates that high economic growth reduces inflation in both short and long-run. The granger causality results reveals there is a unidirectional causality from economic growth to inflation and also there is a granger causality between import and inflation. Other factors that are associated with inflation include money supply, exchange arte and population growth rate. Emerging policy lesson from the study findings indicate that for developing countries like Uganda to control inflation, they should put in place measures aimed at boosting economic growth such as enhancing productivity in the economy. Also, there is need for government to take up measures aimed at controlling imports to avert imported inflation in the country. Finally, money supply is another cause of inflation, so there is need for government to implement prudent monetary policy measures such as low bank lending rates to the private sector to boast domestic investments and at the same time control the exchange rate to enable importation of capital goods for investments.