Volume 9, Issue 1, June 2020, Page: 51-60
Foreign Aid Inflow and Domestic Savings in Uganda: Error Correction Modelling
Henry Tumwebaze Karamuriro, Department of Economics and Statistics, Kyambogo University, Kampala, Uganda
Edward Patrick Ssemanda, Department of Economics and Statistics, Kyambogo University, Kampala, Uganda
Edward Bbaale, School of Economics, Makerere University, Kampala, Uganda
Received: Jun. 13, 2019;       Accepted: Jul. 23, 2019;       Published: Jan. 27, 2020
DOI: 10.11648/j.jwer.20200901.17      View  384      Downloads  111
Abstract
The study sought to establish the impact of foreign aid inflow on domestic savings in Uganda. It was motivated by the low savings ratio which was identified as one of the major constraints to future growth in Uganda, under Vision 2025. Error-Correction Modelling was applied on a time series database for the period 1970-2016. Results of the study show that foreign aid has a negative impact on domestic savings in Uganda both in the short-run and long-run. An increase in foreign aid inflow by 1% of GDP leads to 0.71% decrease in gross domestic savings in the long-run. This implies that an increase in foreign aid as a whole crowded-out domestic savings in the short-run and long-run. By making resources easily available, foreign aid encourages relaxation in saving effort and increases consumption. A policy implication of this result is that Uganda should be wary in soliciting for foreign aid. If foreign aid becomes expedient, then it should be channeled to productive ventures.
Keywords
Foreign Aid, Domestic Savings, Error Correction Modelling
To cite this article
Henry Tumwebaze Karamuriro, Edward Patrick Ssemanda, Edward Bbaale, Foreign Aid Inflow and Domestic Savings in Uganda: Error Correction Modelling, Journal of World Economic Research. Vol. 9, No. 1, 2020, pp. 51-60. doi: 10.11648/j.jwer.20200901.17
Copyright
Copyright © 2020 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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