DETERMINANTS OF GROSS DOMESTIC SAVINGS IN UGANDA

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Date
2018-12-01
Authors
NAGAWA, Vivian
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MAKERERE UNIVERSITY
Abstract
In Uganda‘s development aspiration ―VISION 2040‖, Uganda aspires to transform its society from a peasant to a modern and prosperous middle-income country by 2040, with per capita income of USD 9, 567. It is a commitment that to achieve the vision, savings as a percentage of GDP should be over 35 percent. Notwithstanding such a high commitment, GDS as a percentage of GDP has remained below the desired target, standing at 16.5 percent in 2017. The objective of this study was to empirically establish the determinants of gross domestic savings (GDS) in Uganda. The study was guided by the lifecycle/permanent income hypothesis theoretical framework. The study used time series annual data from World Development Indicators for the period 1980 to 2017; and used Augmented Dickey Fuller and Phillips Perron tests to check time series properties of the variables. The unit root tests revealed that variables were both integrated of order zero and one. Accordingly, to test for both the long-run relationship and short run dynamics of the model, ARDL bounds test was adopted. The empirical results suggested that in the long run, Gross Domestic Product growth rate (GDPg), Broad money (M2) and Foreign Domestic Investments (FDI) have a positive impact on savings, while Current Account Balance (CAB) and Gross National Expenditure (GNE) have a negative effect on savings. The study also revealed that deposit interest rate was not a statistically significant determinant of GDS in the long run. The short run results on the other hand showed that all except CAB and GDPg have a positive and statistically significant impact on GDS. The key policy messages of this study are twofold that is: First, there is need for export promotion and import substitution strategies to improve on current account balance and hence savings through their impact on GDP. Second, there is need to ensure a stable economic environment to attract more Foreign Direct Investments.
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