THE IMPACT OF REAL EXCHANGE RATE VOLATILTY ON ECONOMIC GROWTH: EVIDENCE FROM UGANDA

Ssemyalo Willliam

Working Papers from African Economic Research Consortium

Abstract: Thestudyexaminedtheimpactofrealeffectiveexchangeratevolatilityoneconomic growthinUganda.Thestudyusedquarterlytimeseriesdatafortheperiodof1993to 2015.TheJohansencointegrationandvectorerrorcorrectionmodelwasusedto determinetheimpactrealexchangeratevolatilityoneconomicgrowthinUganda.The explanatoryvariablesinthisstudywererealexchangeratevolatility,government expenditure,labor,exportsandimports.Resultsfrom thestudyrevealedthatreal effectiveexchangeratevolatility,labor,governmentexpenditureandexportswerefound tobestatisticallysignificantinexplainingeconomicgrowthofUgandainthelongrun withallhavingpositiverelationship.Howeverimportswerefoundtohaveanegative relationshipwitheconomicgrowthinthelongrun.Intheshortrunrealeffective exchangeratevolatilityandimportshadnegativerelationshipwitheconomicgrowth. From the regression results study recommends that inorder to spur economic growth the government should introduce import substitution both in the short run and long run. The governmentshouldalsointerveneinforeignexchangemarketonlyintheshortrun. The government should take significant steps to increase the standard of exported goods to make smooth balance of trade.There should be an increase in government expenditure inhuman capital because this will spur economic growth in the long run.

Date: 2020-11-22
Note: African Economic Research Consortium
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