Foreign Direct Investment and Unemployment Rate in Uganda (1991-2017)

ABSTRACT The main purpose of this study was to investigate the effect of foreign direct investment on unemployment rate in Uganda from 1991 -2017. It was driven by two major objectives, which are to investigate if there is casual relationship between foreign direct investment and unemployment rate in Uganda and to examine the effect of foreign direct investment on unemployment rate in Uganda. The study used time series data in between 1991 to 2017 from the World Bank and Uganda Bureau of statistics and also both correlation and regression analysis statistical tools were employed to investigate and explain the effect of foreign direct investment on unemployment rate in Uganda using FDI as independent variable and unemployment rate as dependent variable. In this study it was found that FDI has a negative impact on unemployment. On average, this study concludes that unemployment has been decreasing from 1991 to 2017.The study also shows the FDI has been generally increasing in the recent years though with a lot of fluctuation. The correlation analysis showed that unemployment is negatively related to FDI implying that when FDI increases, unemployment decreases. According to the findings, the study suggests to encourage foreign direct investment in Uganda, because FDI regarded as the key factor that reduces unemployment of the country. Foreign direct investment FDI should be encouraged towards the industrial sector and more especially agricultural sector of the economy since agriculture is the backbone of the Uganda’s an economy. This study contributes that as a departure from the previous studies, firstly extra variables are included in this study. Secondly, ECM procedure was used to depict the speed of adjustment after a shock

TABLE OF CONTENTS

DECLARATION...........................................................................................................i

APPROVAL PAGE.......................................................................................................ii

DEDICATION ........................................................................................................... iii

ACKNOWLEGDEMENTS.............................................................................................iv

LIST OF TABLES .................................................................................................... viii

LIST OF ACRONYMS/ ABBREVIATIONS......................................................................ix

CHAPTER ONE: ......................................................................................................1

INTRODUCTION .......................................................................................................1

1.0: Introduction.......................................................................................................1

1.1 Background of the study......................................................................................1

1.1.1 Historical perspective........................................................................................1

1.1.2 Theoretical perspective .....................................................................................4

1.1.3 Conceptual perspective .....................................................................................6

1.1.4 Contextual perspective......................................................................................7

1.2: Statement of the problem.................................................................................10

1.3: Purpose of the study ........................................................................................11

1.4: Objectives of the study.....................................................................................11

1.5 Research questions ...........................................................................................11

1.6 Hypothesis........................................................................................................11

1.7 Scope of the study ............................................................................................12

17.1 Geographical scope .........................................................................................12

1.7.2 Theoretical scope ...........................................................................................12

1.7.3 Content scope ................................................................................................12

1.7 4 Time scope ....................................................................................................12

1.8 Significances of the study ..................................................................................12

1.9: Operational definition .......................................................................................13

CHAPTER TWO.....................................................................................................15

LITERATURE REVIEW..............................................................................................15

2.0: Introduction.....................................................................................................15

2.1: Theoretical review............................................................................................15

2.2: Conceptual review............................................................................................18

2.5 Unemployment..................................................................................................19

2.5.1 Unemployment in Uganda...............................................................................21

2.6 Empirical Review ...............................................................................................22

2.7 Research gap....................................................................................................26

CHAPTER THREE..................................................................................................28

METHODOLOGY......................................................................................................28

3.0 Introduction......................................................................................................28

3.1 Research design................................................................................................28

3.2 Theoretical framework.......................................................................................28

3.3 Model Specification............................................................................................29

3.4 Justification of Variables ....................................................................................30

3.5 Data type and Sources.......................................................................................31

3.6 Research techniques..........................................................................................32

3.7 Data analysis ....................................................................................................33

3.7.1 Descriptive Analysis ........................................................................................33

3.7.2 Jarque -Bera Tests .........................................................................................33

3.7.3 Unit Root test.................................................................................................34

3.7.4 Augmented Dickey-Fuller Tests .......................................................................34

3.7.5 Phillip-Perron Unit test ....................................................................................35

3.7.6 Co-integration ................................................................................................35

3.7.7 Error Correction Model Specification ................................................................35

CHAPTER FOUR ...................................................................................................37

DATA ANALYSIS AND INTERPRETATION OF RESULTS ..............................................37

4.0 Introduction......................................................................................................37

4.1 Data preliminary testing.....................................................................................37

4.1.2 Test for Normality ..........................................................................................39

Table 4.2: Test for normality ...................................................................................39

4.1.3 Test for Stationarity........................................................................................40

4.2 Co-integration Analysis. .....................................................................................41

4.3 Error Correction Model.......................................................................................44

CHAPTER FIVE.....................................................................................................47

SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS .........................47

5.0Introduction.......................................................................................................47

5.1 Summary of Findings.........................................................................................47

5.2 Conclusion ........................................................................................................47

5.3 Policy Recommendations ...................................................................................48

5.4 Limitations of the Study.....................................................................................50

5.5 Suggestions for Further Studies..........................................................................50

5.6 Contributions of the Study .................................................................................50

REFERENCES........................................................................................................51

APPENDIX I: DATA FOR ANALYSIS....................................................................56