Nicholas Olwor
Published: 2023
Total Pages: 0
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Structural Change is seen by development economics theorists as a driver of sustained and sustainable growth. African countries that have understood this prioritize structural change policies in their national development programs in order to reduce poverty and promote employment through commodity-based industrialization. How does infrastructure contribute to this process? Infrastructure is core to the growth process in different regions across the globe.Infrastructure is crucial to a country's growth process by initiating the process of industrialization. In the last two decades, the EAC Partner States, Uganda inclusive have devoted more resources towards infrastructure development, however, growth remains low and below the 10 % targeted in Uganda in Vision 2040.The purpose of this study is to highlight and explore what is understood and not understood about the linkage between infrastructure and economic growth and implications on growth of the Ugandan economy. The importance of these infrastructures toward economic growth is observed through availing employment opportunities to people carrying out the activity of construction and maintenance and manufacturing. Also improved infrastructure greatly improves accessibility as well as linking up markets. This is motivated in a way that factors of production are easily moved from one location to another and across borders, consequently improving the country's competitivenessThe study looked at the effects of big push infrastructure investments on structural transformation and economic development in the context of Uganda over the period 2015 to 2021. Uganda represents a recent, prime example of rapid infrastructure expansions that, given their large scale and extent, appear worthy of designation as big push investments. Uganda provides almost ideal study setting for several reasons: first, the country experienced large scale investment in two separate kinds of infrastructure, namely all-weather roads and electricity network. Exploiting differences in the sequencing of these two infrastructure expansions allowed me to study both the individual effect (of roads) and the interaction effects (of roads and electricity).The study empirically estimated a production function linking economic growth to infrastructure stock, labor and non-infrastructure capital as inputs. The analysis was based on the PMG estimator to address any heterogeneity issues that could arise. The results reveal the existence of a long term equilibrium relationship between economic growth, infrastructure, capital and labor force, hence, the choice of PMG estimator. Specifically, the results demonstrate that infrastructure development has a positive effect on growth of Uganda during the 2015-2021. However, the results show that the impact of infrastructure stock on growth is evident in the long term but not in the short term. This is because the benefits of infrastructure development take time to be realized. For the regions in Uganda, this is realized after about 2 years with an output elasticity of infrastructure stock of 0.20.Estimates from the augmented production function show that capital stock positively affects real GDP per capita in the long term. It was estimated that output elasticity of capital stock was 0.24, clearly demonstrating the important role of capital accumulation in the growth process. The short run effect of capital stock was positive but not realistically significant, implying that capital accumulation takes time and most of the capital investments have long gestation periods, hence, little effect on growth in the short run.The results also confirmed that labor force is among key factors to Uganda's growth. There was a positive link between labor force and economic growth both in the short run and long run. The output elasticity of labor was estimated at 0.60 in the long run. This is because Uganda is still developing and rely mainly on labor intensive techniques of production and therefore labor forms an important input in the production process.A uni-directional causality exists between infrastructure stock and growth in Uganda. This implies that accumulation of infrastructure explains growth in Uganda but not vice versa. Theoretically, this is justifiable as infrastructure stock (transport, energy and communication infrastructure) are considered as basic inputs in the production process. Consequently, building more roads, construction of railway lines, increasing the installed capacity of electricity generation and more communication infrastructure are expected to promote economic growth in Uganda. The results are in line with a previous study by Sahoo et al. (2010).The study confirms a positive contribution of infrastructure stocks to economic growth using PMG estimation technique. However, in the short run, infrastructure development does not significantly influence Uganda's growth. Significant effect on growth is only experienced in the long term. Therefore, from the findings of this study, a long run relationship exists between infrastructure stock and economic growth in Uganda.