Industrialization, Household Consumption Expenditure, and Poverty Dynamics in Uganda: An Empirical ARDL Investigation

Abstract

This paper addresses the relationship between industrial development and poverty reduction in Uganda, with HCE representing an index of the welfare improvement. ARDL estimations are used in analyzing the relationship between the change in poverty, determined by industrial output, industrial employment, agricultural development, population growth, FDI, domestic investment and industrial policy. Long-run findings suggest industrial output, industrial policy and domestic investment contribute to poverty reduction by increasing household consumption. However, while the former is significant, the latter two contribute with positive, though low, effects. There is a positive correlation coefficient for population growth which could possibly represent the demographic dividend. A strong positive relation between agriculture development and household consumption could not be established; however, this suggests that the welfare gains from agriculture are not distributed inclusively. FDI and industrial employment fail to become statistically significant in the long-run. In the short run, dynamics are fast in reaching long-run equilibrium, where about 79% is readjusted in a period. In this sense, it appears that industrial output, industrial employment, population growth and domestic investment are significantly contributing positively toward poverty alleviation. The influence of FDI and industrial policy are not statistically significant. Generally, industrialization, domestic investment and industrial policy have significant welfare improving roles while agriculture may not sufficiently integrate into industrial processes of poverty alleviation. With this information, the policy environment should focus more on efficient industrial policy implementation, encourage labour-intensive industrialization and increasing agriculture inclusiveness as well as raising domestic investment.