Institutional, Governance and Economic Factors Influencing Foreign Direct Investment Inflows on East Africa
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Date
2014-08-21
Authors
Karau, James Ngondi
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Abstract
Development economists suggest that Foreign Direct Investment (FDI) is
important for economic growth as it provides the much needed human and
physical capital as well as improved technology for investment. East Africa
exhibited the lowest in-flow of FDI when compared to other African Regions,
despite the substantial policy and structural changes as well as economic
integration that had been taking place in the East Africa during the study
period. The main objective of this study was to examine the institutional,
governance and economic factors influencing FDI Inflows in Eastern African
Countries. Non-experimental panel data analysis was conducted for eight
Eastern African Countries during the period 1996-2010. This study employed
an econometric technique for analysis of various variables included in the
model. FDI was the endogenous variable on which the exogenous variables
were regressed. These exogenous variables included institutional, governance
and economic factors that influenced FDI. A one-way fixed effects least
squares dummy variable model was estimated. The study found that
institutional and governance variables particularly control of corruption,
political stability, rule of law and infrastructure significantly influenced FDI
inflows to East Africa. Other than institutional variables, other factors like
inflation, economic growth and rate of return on investment were also found
to be significant. But external debt service did not significantly influence FDI
inflows. The findings suggested that East African governments needed to
strengthen their institutional base and governance as well as improve their
macroeconomic environment in order to attract more FDI. The EA Countries
should invest heavily on infrastructure, rule of law and control of corruption
to enhance FDI inflows.
Description
Department of Applied Economics, 128p. 2014