Foreign direct investment inflow, volatility and economic growth in Uganda: a empirical investgation.

This study explores the impact of Foreign Direct Investment (FDI) on the economic growth in Uganda over the 1970-2002 period. The study reviews and contributes to the literature of FDI and economic growth. The study deviates from previous studies in Uganda by introducing measures of the volatility of FDI inflows. As introduced into the model, these are predicted to have a negative effect on growth. This study uses a model of endogenous growth in which the driving force is the technological diffusion entailed by the presence of FDI inflow into the economy. Next, the study estimates a standard growth model using OLS over the period 1970-2002. Basic results suggest that foreign direct investment is not positively correlated with economic growth in Uganda. Also empirical results do not show that FDI volatility negatively affect economic growth in Uganda. However, the empirical analysis also does not point out to the need of a certain level of human capital (as found in some previous studies), economic stability and liberalised markets in Uganda in order for it to be able to benefit from the entrance of capital flows. There is a suggestion that it is not the volatility of FDI per se that retards growth but that such volatility captures the growth-retarding effects of unobserved variables.