FOREIGN DIRECT INVESTMENT, INSTITUTIONAL QUALITY AND ECONOMIC GROWTH AMONG EAST AFRICAN COUNTRIES

Abstract

Foreign Direct Investment is important to all developing countries however it is more critical to African countries than other developing countries. Specifically, incomes are lower and poverty rates are higher in SSA countries than in non-SSA developing countries. The problem in majority of African countries is that most have a small tax base. Another relevant point is that most African countries have undeveloped capital markets and do not have access to international capital markets. This study will be seeks to investigate the effect of foreign investment on economic growth among East African countries. The study seeks to determine the effect of Foreign Direct Investment on the Economic growth among the East African community countries. The study will also look at the moderating effect of institutional quality on the relationship between Foreign Direct Investment and economic growth. The study will adopt descriptive research design mainly in modeling the linkage between foreign direct investment and economic growth. The scope of the study will be the countries of; Kenya, Uganda, Tanzania, Rwanda, Burundi and South Sudan. This focus is informed by the fact that the six countries are in the East Africa community which is key in attracting Foreign Direct Investment on the continent. The study period will be 2001 – 2020. The data will also be time series for each country and then combined into a panel structure for all the six countries. For empirical model analysis the study will rely on autoregressive distributed lag model since the data for each country has data that is long, to determine how economic growth respond to changes in foreign investments among these countries. The study will also use, unit root test, correlation test, trend analysis, co-integration test, granger causality as the model diagnostic tools. The study will also use the heteroskedasticity test for variance and autocorrelation test to assess the stability of the model. The study will be of use to government departments, researchers and non-governmental organizations.