The study set out to establish the effect of foreign direct investment inflows on Economic growth
in Uganda. This study used data from World Bank Database covering the period between 2000
and 2013. Line plots were used to establish the trend of Exports, inflation, FDI inflows and GDP.
Unit root test was undertaken using the Augmented Dickey Fuller (ADF) tests to find out if the
variables were stationary. A linear regression model was fitted to determine the effect of FDI
inflows, exports and inflation on GDP.
The line plots indicated that the Exports, inflation, FDI inflows and GDP had competing upward
and downward trends thus not stationary. The variables were subjected to a unit root test and
found to be stationary at first difference. A regression model then was fitted to determine the
effect of Foreign Direct Investment Inflows on economic growth in Uganda. The results
indicated that FDI inflows had a positive effect on Economic growth though not statistically
significant. The null hypotheses of Exports not granger causing GDP was accepted at 5% level of
significance and Johansen's Cointegration approach showed the presence of a long run
equilibrium relationship between FDI inflows and GDP.
To increase economic growth in Uganda, the study recommends that the Country should Increase
Foreign Direct Investment in the areas such as energy, oil and gas, transportation, information
and communication technology and setting up of export promotion industries to add on the value
on primary exports thus realizing high foreign exchange earnings.