Does financial credit drive sectoral economic growth in Uganda? Evidence from Other Depository Corporations

Abstract

This study examined the effect of financial credit from Other Depository Corporations (ODCs), namely, commercial banks, credit institutions, and micro-deposit-taking institutions, on sectoral economic growth in Uganda. Using quarterly panel data from 2010/11 to 2023/24 financial years across ten economic sectors, we employed the panel ARDL-PMG model complemented with Dumitrescu-Hurlin panel causality test. The results reveal that commercial bank credit and micro-deposit taking institutions’ credit exert significant positive long-run effects on sectoral GDP, though the elasticities are relatively inelastic at 0.38% and 0.12% for a 1% increase in credit from respective ODCs. By contrast, credit institutions’ credit shows no significant long run effect. Additionally, credit from all ODCs showed no significant overall short-run effect. Robustness checks, including re-estimation of ARDL-PMG model with a sample of sectors and Prais-Winsten regressions with panel-corrected standard errors (PCSEs), confirm the stability of the findings. Policy implications point to the need for targeted and risk-sharing interventions, such as concessional lending to high-potential sectors, credit guarantee facilities and sector-specific subsidies through commercial banks and micro-deposit-taking institutions, rather than generalized interest rate reductions. These approaches can expand access to affordable credit, improve allocation efficiency and stimulate inclusive development.