Growth and Welfare Effects of Macroeconomic Shocks in Uganda

Using a computable general equilibrium model, this paper examines the growth and welfare effects of three macroeconomic shocks in Uganda during the period 2010 17:changes in terms of trade, changes in international oil prices, and changes in development assistance inflows. Our analysis reveals four key findings. First, the largely positive impact of these three shocks on agriculture and services appears to offset the negative impact on industry leading to minimal deviations in real GDP growth from the business-as usual scenario. Moreover, the three shocks only lead to short-term as opposed to permanent deviations from trend growth in real GDP. Second, the three shocks are transmitted to the domestic economy and real GDP growth through changes in the terms of trade, exchange rate, and cost of production. Third, household welfare decreases and remains below the business-as-usual scenario during the entire simulation. Fourth, the poverty reduction rate is lower under the three external shocks compared to the business-as-usual scenario.