Effects of inflation and unemployment on economic growth in Uganda

Abstract

Since economic growth raises living standards and other relevant issues, it becomes crucial to the development of any country. Achieving sustainable economic growth is something Uganda needs to prioritize more. The expansion of the economy is influenced by a number of both positive and negative factors. Thus, in order to achieve strong economic growth, the economy's specific goals are to maintain both a low and stable unemployment rate and relatively stable prices. This study looks at how certain macroeconomic factors, such as the unemployment rate and inflation, affect Uganda's economic growth from 1985 to 2022. The World Bank's World Development Indicators (WDI) serve as the study's data source for determining how unemployment and inflation affect GDP. The variables were integrated of I (0) and I (1), according to the results of the Phillip Perron and Augmented Dickey Fuller test. The Granger causality test indicates that the relationship between GDP and unemployment is bidirectional. The Autoregressive Distributed Lag (ARDL) method was employed for the estimation. As per the analysis, inflation can spur economic growth, which in turn encourages more investment during periods of low inflation. Therefore, the study suggests that inflation should be controlled. Yet, growth is impeded in situations of hyperinflation. The research suggests giving priority to interventions in industries that generate jobs.