Impact of Remittances on exchange rate in Uganda

Abstract

This paper investigates the impact of remittances on exchange rate in Uganda, using annual time series data of 1987 to 2020 while controlling for other fundamental variables such as inflation, interest rate, gross domestic product, foreign direct investment, and trade openness. The results are obtained using the Autoregressive Distributed Lag (ARDL) model estimation technique. The findings show that in the long run remittances and inflation are positive and significantly related to exchange rate in Uganda. Gross domestic product growth and trade openness are negative and significantly related to exchange rate in Uganda. These findings suggest that the main policy need for the government is to ensure that effective policies are implemented to channel remittances towards investment purposes especially those that relate to the productivity sector.