The Short- and Long-Run Relationship between Trade Openness and Economic Growth in Uganda

Abstract

Using data covering the period from 1983 to 2019, we apply the autoregressive distributed lag (ARDL) bound testing approach to investigate whether trade openness has spurred economic growth in Uganda. The extant literature shows that trade openness increases economic growth, but this empirical evidence remains contested. Our empirical results on the long-run relationship reveal the existence of a positive and statistically significant relationship between trade openness and economic growth. Except for the use of exports to measure trade openness, using openness index and imports to proxy for trade openness indicates that an increase in the above indexes leads to increased economic growth in the long-run. In the short-run, however, more openness, exports and imports lead to increased economic growth. This implies that a significant proportion of economic growth in Uganda has been due to short-run increase in the country’s openness, more exports and imports. This paper confirms that using openness and imports indexes to proxy for trade yields more robust results compared to the use of export indices. At the policy level, these results show that encouraging more trade and imports that embody technology or intermediate inputs is essential in the production process could increase economic growth in the long-run. In the short-run, expanding the scope of exports and imports is important for economic growth.