DETERMINANTS OF GROSS DOMESTIC SAVINGS IN UGANDA
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Date
2018-12-01
Authors
NAGAWA, Vivian
Journal Title
Journal ISSN
Volume Title
Publisher
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.