Foreign Direct Investment, Efficiency, and Regional Disparities in Uganda’s Coffee Sector

Foreign direct investment (FDI) is widely promoted as a catalyst for agricultural transformation in developing countries, yet empirical evidence on its efficiency effects remains limited and mixed. This study examines the association between foreign direct investment and coffee production efficiency in Uganda, with particular attention to regional heterogeneity and policy context. Using a panel of five coffee-producing regions over the period 1995–2024, we estimate technical efficiency scores through stochastic frontier analysis and subsequently analyze their relationship with FDI exposure using fixed-effects panel regressions.The results indicate that foreign direct investment is positively and significantly associated with coffee production efficiency, reflecting improvements in the use of existing inputs rather than expansion of cultivated area. On average, a one percent increase in FDI inflows is associated with an approximately 0.07–0.09 percent increase in production efficiency. However, these efficiency gains are unevenly distributed across regions, with stronger effects observed in relatively mature coffee-producing areas. Complementary factors including technology adoption, infrastructure, capital formation, and governance quality are also positively associated with efficiency, conditioning the magnitude of investment-related gains. In addition, the relationship between FDI and efficiency strengthens following the implementation of Uganda’s National Coffee Policy, highlighting the role of institutional reforms.The findings suggest that while foreign investment can support efficiency-enhancing growth in smallholder-based agricultural systems, its benefits are neither automatic nor uniformly distributed. Effective investment strategies therefore require complementary public investments and institutional frameworks to promote inclusive and regionally balanced agricultural development.