The Effect of Energy Consumption On Uganda’s Domestic Investment.
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Date
2024-10-29
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Makerere University Business School
Abstract
This study investigates the impact of energy consumption on Uganda’s domestic investment during the period 2011 to 2021. Specifically, it explores how fluctuations in energy consumption, alongside other variables such as population growth, energy prices, and the introduction of new technologies, affect domestic investment. The research is motivated by the critical role energy plays in driving economic activities and investment in developing countries, with Uganda being no exception. Despite significant economic growth in recent decades, Uganda’s domestic investment has remained constrained, partly due to inadequate energy infrastructure and high energy costs. The study adopts a longitudinal research design using quarterly time-series data to analyze the relationship between energy consumption and domestic investment. The Vector Error Correction Model (VECM) is employed to estimate both the short-run and long-run dynamics of the relationship. Key findings reveal that energy consumption, population growth, and energy prices are significant determinants of domestic investment in Uganda. In the long run, a 1 percent increase in energy consumption leads to a 0.87 percent rise in domestic investment, underscoring the importance of energy accessibility and affordability. However, the adoption of new technologies during the study period did not have a significant effect on domestic investment.
The study also examines the causal relationship between energy consumption and domestic investment using Granger Causality tests, which show no direct causal link between the two. However, energy consumption remains a critical factor for driving investment indirectly. The results suggest that reforms aimed at increasing energy supply, reducing energy costs, and fostering the use of renewable energy sources could play a pivotal role in stimulating domestic investment. In conclusion, this research provides valuable insights into the role of energy consumption in fostering domestic investment in Uganda, and it offers policy recommendations for improving energy infrastructure and pricing to enhance the investment climate. The findings can help policymakers design strategies that leverage energy reforms to promote sustainable economic growth and domestic investment in Uganda.
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This is a master's thesis.
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Citation
Nakyagaba, V. (2024) The Effect of Energy Consumption On Uganda’s Domestic Investment. (Unpublished master's dissertation). Makerere University Business School, Kampala, Uganda.