Foreign aid and economic growth in Uganda

The major aim of this study is to investigate the impact of foreign aid on Uganda’s economic growth for the period 1980 - 2012 using secondary time series obtained from World Bank (2014) development indicators. The model is based on the production function where foreign aid enters into the production function as one of the inputs. Analytically, the study uses a single equation error correction model after testing for unit root using the two common tests for stationarity ADF and PP unit root tests. The study findings indicate that foreign aid has no significant impact on Uganda’s economic growth while inflation significantly negatively affects the process of economic growth in Uganda. Basing on the findings of the study, the study recommends that the government of Uganda should find alternative sources of funding since foreign aid has no significant impact on Uganda’s growth process and that the government of Uganda should also strive hard to maintain economic stability in the country by controlling the rate of inflation in the country. Key words: Uganda, Foreign aid, Economic Growth, and the Error correction Model.