Foreign Direct Investment And Net Export As Correlates To Foreign Exchange Rates Uganda (1990 - 2014)

ABSTRACT

The study set to examine the relationship between FDI, net exports and foreign exchange rates in

Uganda between 1990 —2014 and it was carried out on the three research objectives which included to:

establish the relationship between FDI and foreign exchange rates in Uganda, establish the

relationship between Net exports and foreign exchange rates in Uganda and to show the effect of

FDI and Net exports on foreign exchange rates in Uganda.

The study adopted a qualitative descriptive correlational research design involving both

quantitative and qualitative approaches in data collection. A time series analysis was adopted and

the use of quantitative techniques to analyze secondary data scientifically to critically conclude the

research objectives, secondary data was collected from World Bank reports, bank of Uganda

international monetary fund data sheets and United Nation Commission on Trade and

Development data sheet among others.

On the trend of foreign exchange rate, the researcher found a general increase in foreign exchange

rate of Uganda between the periods of 1990 to 2006. The only slight decrease in the value of

Ugandan export rate was witnessed between 2006 to 2007, then a slight decrease between 2009

2010 and after a general increase between a period of 2010 to 2014.

Under the trend of foreign direct investment, the researcher got a slight decrease in Foreign Direct investment in the period between 2011 to 2012, and a total decrease between 2012 to 2013 and a general increase between 2013 to 2014. The increase in FDI rate could have been attributed to the

peaceful political climate, and reduction in inflation among others.

The researcher went ahead to determine the mean values of the variables whereby it ‘was found out that Foreign Exchange Rate had a mean of 413.552, Net Exports had a mean of 16.692 while FDI had a mean of 62.86, as shown in the table in the mean column. On the relationship between Net exports and foreign exchange rates in Uganda there researcher found out that Net export is strongly related to foreign exchange rate, most of the points are close

to the fitted trend. This relationship is as a result of high flow of Net export level which leads to low rate of foreign exchange.

The researcher used Pearson’s correlation coefficient to establish the strength of relationship between net export and foreign exchange rate in Uganda whereby a very strong relationship between the foreign exchange and Net export (r~ 0.9263) was seen and there is also a very strong

foreign exchange and FDI (r = 0.8655) the strength of relationship between FDI, net export and foreign exchange rate is determined by the coefficients of determination which the figure above shows that there is a very strong relation between the DV and the IVs. Under regression analysis

of FDI, Net export and foreign exchange rate in Uganda, the researcher used P-Value test analysis.

The researcher recommended that in order to encourage foreign exchange rate, policymakers should encourage FDI and exchange rate to make Uganda a serious contender for Foreign direct exchange and net export, the country needs to be modernly equipped with well-functioning infrastructure and effective vocational and skill training institutions suited to investors’ generic human resource needs. With regard to country development policy, investing in productive

infrastructure is considered to be an instrument to improve the foreign exchange rate ofthe country.

TABLE OF CONTENTS

DECLARATION.

APPROVAL II

DEDICATION ~fl

ACKNOWLEDGEMENT iv

ABSTRACT v

LIST OF TABLES Viii

LIST OF FIGURES ix

CHAPTER ONE 1

INTRODUCTION 1

1.0 Introduction 1

1.1 Background to the Study 1

1.1.1 Historical Review 1

1.1.1 Theoretical Perspective 2

1.1.3 Conceptual Perspective 3

1.1.4 Contextual Perspective 5

1.2 Statement of the Problem 6

1.3 Purpose of the Study 6

1.5 Research Questions 7

1.6 Research Hypothesis 7

1.7 Scope of the Study 7

1.7.1 Subject Scope / Content scope 7

1.7.2 Geographical Scope 7

1.7.3 Time Scope 8

1.8 Significance of the Study 8

1.9 Conceptual Framework 8

CHAPTER TWO 10

LITERATURE REVIEW 10

2.0 Introduction 10

2.1 Theoretical Review 10

2.2. 1 The relationship between FDI and Foreign Exchange rates 10

2.2.2 Relationship between Net Exports and Foreign Exchange Rates 13

2.2.3 Effect of Foreign Direct Investment (FDI) and Net Exports on Foreign Exchange Rates...15

2.3 Research Gaps 18

CHAPTER THREE 19

METHODOLGY 19

3.0 Introduction 19

Vi

3.1 Research Design.19

3.2 Data Collection Instruments 19

3.3 Sources of Data 19

3.4 Validity and Reliability of Data 19

3.5 Data Processing and Analysis 20

3.6 Limitations of the Study 21

3.7 Ethical Consideration 21

CHAPTER FOUR 22

PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA 22

4.0 Introduction 22

4.1 Level of the Foreign Exchange Rate in Uganda from 1990 to 2014 22

4.2 The Level of the FDI Rate in Uganda (1990 To 2014) 23

4.3 Level of the Net Export in Uganda from 1990 To 2014 24

4.4. The Relationship between FD{ and Foreign Exchange Rates in Uganda 25

4.5 The Relationship between Net Exports and Foreign Exchange Rates in Uganda 26

4.6 Normality Test 27

4.7 Correlations analysis Of Net Export and Foreign Exchange Rate in Uganda 30

4.8 Regression analysis of FDI, Net Export and Foreign Exchange Rate in Uganda 31

CHAPTER FIVE

DISCUSSION, CONCLUSIONS AND RECOMMENDATIONS 34

5.0 Introduction 34

5.1 Discussion 34

5.2 Summary of the findings 35

5.3 Policy implications 36

5.4 Areas for further Research 37

REFERENCES 38

APPENDICES 41

Appendix I: Record sheet 41

Appendix II: Curriculum Vitae 42

APPENDIX iii: Introduction Letter 46

APPENDIX IV: Research Time Frame 47