Impact of Total Government Expenditure and Its Break down on Growth in Agricultural Value Added

Abstract

Agriculture remains the mainstay for the majority of Ugandans and over the past decade, government expenditure to the agricultural sector has been increasing though it is still below the 10% target recommended by the Maputo declaration (2003) which emphasised the need for all African countries to increase their budgetary allocation to the agricultural sector. On the contrary, growth in agricultural value added has exhibited a constant trend. This study was conducted to examine the factors influencing agricultural value added including: total government expenditure to the agricultural sector, development expenditure to the agricultural sector, recurrent expenditure to the agricultural sector, capital stock, labour force, real effective exchange rate, trade openness and lending rate. Annual time series data (1988-2018) and the autoregressive distributive lag (ARDL) model augmented by the bounds test were used for estimation.

The study revealed that in the long-run total government expenditure allocated to the agriculture sector and agricultural development expenditure had a significant positive impact on growth in agricultural value added with elasticities of 0.19 and 016 respectively while recurrent expenditure had an insignificant negative relationship. Other variables found to have a significant impact on growth in agricultural value added in the long run included: capital stock, labour force, trade openness, and lending rates with capital stock having a positive relationship while lending rate and labour force had a negative impact. In the short run, trade openness, labour force and development expenditure had a significant positive relationship with growth in agricultural value added while lending rate and real effective exchange rate had a significant negative relationship with growth in agricultural vale added.

Based on the findings, the study recommends the government to increase the amount allocated to the agricultural sector and to ensure that the largest portion is assigned to agricultural development expenditure. The study further recommends an increase in agricultural capital stock and trade openness.