The Empirical Nexus Between External Sector Dynamics and Sectoral Growth Performance in Uganda

This study examines the empirical nexus between external sector dynamics and sectoral growth performance in Uganda over the period 1991–2025. Specifically, it investigates the effects of foreign direct investment (FDI), personal remittances, exchange rate movements, external debt servicing, and total international reserves on the performance of the agriculture, industry, and services sectors. The study is motivated by the limited empirical evidence on the sector-specific effects of external sector developments, as most previous studies have focused on aggregate economic growth. Using a quantitative time-series research design, annual secondary data were obtained from the World Bank’s World Development Indicators. The analysis employed the Augmented Dickey-Fuller (ADF) unit root test and the Autoregressive Distributed Lag (ARDL) modelling approach to estimate both short-run and long-run relationships. The results indicate mixed orders of integration, with the exchange rate being stationary at level while the remaining variables became stationary after first differencing, validating the use of the ARDL framework. Bounds test results confirmed the existence of long-run relationships between external sector variables and sectoral growth. The findings reveal that external sector dynamics exert heterogeneous effects across sectors. Exchange rate depreciation negatively affects agricultural, industrial, and services sector performance, while FDI significantly promotes industrial and services growth through capital accumulation, technology transfer, and productivity improvements. Personal remittances also positively influence the industry and services sectors, whereas international reserves support agricultural growth by strengthening macroeconomic stability. The error correction model indicates a speed of adjustment of approximately 16.5% toward long-run equilibrium following short-run shocks. The study recommends maintaining exchange rate stability, attracting productive FDI, promoting productive use of remittances, and strengthening sustainable reserve and debt management to support Uganda’s structural transformation.