The purpose of the study was to explore the role of governance quality in the relationship between foreign aid and economic growth in Uganda during the period 1991 to 2023, using the autoregressive distributed lag model to capture both the shortrun and longrun dynamics. Overall, the study revealed that while foreign aid has a negative impact on economic growth both in the shortrun and long run, the direct impact of institutional quality on economic performance is evidently positive. Most importantly, the findings show that the effect of aid on economic growth is moderated by institutional quality both in the shortrun and longrun. The optimal calculations reveal that a1% increase in foreign aid would decrease economic growth by 0.71%, and 0.28% at minimum and average level of institutional quality respectively. However, a similar increase would increase economic growth by 0.049% at the maximum level of institutional quality. The marginal effect of foreign aid on economic growth in Uganda is positive at high level of institutional quality and negative at a low level of institutional quality. Additionally, increased investment and broad money growth are associated with an increase in economic growth, whereas population growth has an adverse effect on growth, but increases it in the short run during the first lag, reflecting time needed as expanding workforce is absorbed into productive employment. Policy implications are discussed. The findings inform policy by emphasizing the need for institutional reforms that enhance transparency, accountability, and productive investment of aid resources.
Menya et al. (Thu,) studied this question.