Inter-sectoral linkages and economic growth in Uganda: A SAM-based multiplier model analysis

Abstract

Sectors are the engines of economic growth in any economy making inter-sectoral linkages the most significant target for development practitioners and policymakers. This study examines and ascertains the magnitude of production and consumption inter-sectoral linkages in Uganda’s economy. Secondary data from 2009/10 and 2016/17 Uganda Social Accounting Matrices (SAMs) is analyzed based on the multiplier model. A buttress of robust checks including a Vector Error Correction Model (VECM) is adopted for validation purposes using a longer time series from 1980 to 2020. The study found that a one million income injection across sectors has a larger multiplier effect (in terms of output, GDP, income, and consumption) than the service sector followed by agriculture and then the industrial sector. Despite the higher multiplier effects of the services sector, its contribution to employment is limited. A large amount of labor is trapped in the low-paying subsistence agricultural sector. Therefore, the government should implement policies that supplement rapid services sector growth with strategies that attract and utilize excess labor in the agricultural sector. Results also indicate that the services sector prematurely emerged as the driver of economic growth before the economy was fully industrialized. Government should formulate industrial sector catch-up policies to rebalance its development agenda. To accomplish this, proportionately more funding should be allocated to the industrial sector. Lastly, sectoral multiplier effects projections and forecasts should be incorporated into the National Development Plans, Budgeting Frameworks, and forecasts.