The relationship between stock market performance and economic growth in Uganda: A time-series econometric analysis (2000–2025)

Background: The possibility of stock market leading to economic growth due to their role in providing liquidity, risk diversification and mobilizing capital has been well empirically tested in developed economies. But in such frontier markets like Uganda, there is a disputed and little-studied relationship. Purpose: This research project will be an empirical study exploring both the short-run and long-run causation between the stock market performance and economy growth within Uganda between the year 2000 and 2025. Methodology: We use quarterly time-series data (100 observations) on the Uganda Securities Exchange (USE), the Bank of Uganda and the World Development Indicators. The market capitalization ratio (MCAP/GDP), turnover ratio and the USE All-Share Index (ALSI) returns are used as proxies of stock market performance. The economic growth is quantified by real GDP per capita (RGDPPC). Autoregressive Distributed Lag (ARDL) bounds testing method is used and then an error correction modeling (ECM) and Granger causality tests are used a VECM framework. Result: A test of ARDL bounds establishes a long-run cointegrating relationship (F-statistic = 4.87 > upper bound critical value at 5%). But the elasticity of both in the long run is poor: each 1 percentage point increase in MCAP/GDP would correspond to a 0.11 percentage point increase in RGDPPC (p < 0.05). There are no significant long sided effects in turnover ratio and stock returns. The findings of the Granger causality indicate unidirectional causal relationship of economic growth to market capitalization (F=5.21, p