BUDGETARY AND FINANCIAL POLICY POTENCY AMID STRUCTURAL BOTTLENECKS - EVIDENCE FROM UGANDA

Most policy analysts implicitly relax the assumption that structural b ottlenecks distinctively exist in developing economies. In this paper, some bottlenecks are identified and modeled to augment a small model of Uganda. The baseline and augmented model variants are estimated and tested on aggregate data, 1963-85, and their results are compared. Th e magnitudes and signs of the short-run estimates and long-run multipl iers from the two variants show that bottlenecks constrain the potency of stabilization policy. In general, the hypothesized effects of stru ctural elements are validated for the aggregate supply and foreign bal ance schedules of the economy, while orthodox budgetary and financial policies are major players on the aggregate demand side. It is propose d that policy makers in Uganda should pay more attention to supply-sid e issues, especially with respect to the food and export sectors.