Paradox of Industrialization and Poverty in Uganda: Evidence From ARDL on Manufacturing Performance, Domestic Investment and Household Welfare (1990–2024)

This paper explores the puzzle of the relationship between manufacturing performance, domestic investment, and poverty reduction in Uganda over the period 1990Q1-2024Q4. We investigate this puzzle motivated by the recent historic structural shift in Uganda when manufacturing share in GDP exceeded that of agriculture and, meanwhile, poverty persists stubbornly. Utilizing household consumption expenditure for a more appropriate measure of poverty and employing the Autoregressive Distributed Lag (ARDL) bounds testing approach using quarterly time-series data, we analyze short and long-run dynamics. The results show a contrary effect in contrast with what expected, that manufacturing value-added is positively and statistically significantly associated with poverty in both short and long-run (coefficient = 0.411, p=0.0285), suggesting an increase in jobs-less capital-intensive growth which is normally linked to premature de-industrialization, in line with the prediction from classical structural transformation theory and structural change development narrative that in the presence of inclusive growth the positive effect should not occur; there is no statistically significant effect on poverty Reduction of domestic investment; while population growth has a statistically negative short-run impact on poverty reduction; our error correction term (-0.541, p<0.01) indicated a well-defined long-run equilibrium where adjustment is rapid. The study thus provides country-specific findings on structural transition dynamics for the lower middle-income African economy based on ARDL method, which, helps fill up the empirical gap of Uganda focused on manufacturing-poverty nexus analysis. Our policy prescriptions recommend among others: focus on increasing shares of labor-intensive manufacturing sub-sectors, address infrastructural and credit bottlenecks, leverage diaspora remittances towards more productive investments, and development of appropriate national investment plans and a coherent strategy of execution, monitoring and evaluation.