The Role of Uganda Securities Exchange in the Economic Growth of Uganda: An Econometric Analysis

Abstract

This study focused on the role of the Uganda Securities Exchange (USE) in stimulating economic growth in Uganda based on the premise that its contribution is not evident and yet is has been documented that economic growth is accelerated once a stock exchange opens, and that, securities markets support economic growth and can increase economic efficiency, investment and growth of real gross domestic product (GDP) of a country. This quantitative study focused on a period of twenty five years (1986-2010). Autoregressive distributed lag (ARDL) bounds testing procedure was adopted because the Uganda’s stock market is not only small but also very young. The study variables included real GDP as a proxy of economic growth; while the proxies for the stock exchange development were shares traded, market turnover, and market capitalization. The sources of these data included Uganda Bureau os Statictics, Bank of Uganda, USE, Ministry of Finance and Economic Development, International Monetary Fund, and World Bank databases. Analyses were carried out using SPSS and SHAZAM computer softwares. Real GDP was established to be more closely correlated to market capitalisation [Pearson’s r = .973, Sig. (2-tail) = .000] than it is with the turnover [Pearson’s r = .634, Sig. (2-tail) = .036] and the shares traded [Pearson’s r = .730, Sig. (2-tail) = .011]. While a strong and statistically significant correlation was established between the economic growth and the Exchange, the Granger causality relationship findings were inconclusive further affirming that stock markets are not a sine qua non of economic growth. It was recommended that the government should support USE to attract more investors and become more vibrant. Also, USE should take advantage of the East African Stock Markets Association (EASEA) to grow its operations and market base.