The effect of trade liberalization on Uganda’s trade balance

Abstract

This paper examines the effect of trade liberalization on Uganda’s trade balance given that the National Development Plan (NDP) III of Uganda notes that the country's trade balance has remained in deficit. The study considers the variables of Trade Balance, Trade Liberalization, Exchange Rate, Terms of Trade, Tariff Rate, and Gross Domestic Product Growth for the period ranging from 1990-2021 using the autoregressive distributed lag (ARDL) approach with data from the World Development Indicators by World Bank. The stationarity and co-integration tests were conducted to ensure stationarity of variables and the existence of a long-run relationship using the bounds test respectively. The results reveal that in the long run there is a positive relationship between terms of trade, exchange rate, tariff rates and gross domestic product growth on trade balance. There is, however, a negative relationship between trade liberalization and trade balance. The study recommends measures to oversee the implementation of trade policies like surcharges as well as nontariff barriers like quotas and licensing requirements. To balance Uganda's trade, the government should ensure currency depreciation. For these reasons, Uganda's monetary policymakers ought to regulate currency depreciation.