Relationship between Macroeconomic Factors and Foreign Direct Investment in East African Community

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dc.contributor.advisorStephen Gitahi Njuruen_US
dc.contributor.authorWambua, Mwalya
dc.date.accessioned2024-06-05T10:02:58Z
dc.date.available2024-06-05T10:02:58Z
dc.date.issued2023-11
dc.descriptionA Project Submitted to the Department of Econometrics and Statistics in the School of Business Economics, And Tourism In Partial Fulfillment Of The Requirements For The Award Of The Degree Of Master Of Economics (Econometrics) Of Kenyatta University, November, 2023en_US
dc.description.abstractForeign direct investments (FDI) are key for the growth of a nation’s economy, since it transfers money, technology, and knowledge to the recciving nation. Governments of many countrics actively seek FDI to promote economic growth and development and may offer incentives. FDI has resulted from globalization through the integration of local or domestic markets with international markets across the globe. However, the inflows of FDI into the East African Community (EAC) remain low compared to other regions. Therefore, the goal of this research was to examine how macrocconomic factors (exchange rate and GDP) affect FDI in EAC countries, through infrastructural development, trade openness, inflation, resource endowment, case of doing business as control factors. The study sought to address two specific objectives; to examine the effect of exchange rate on FDI in the East African Community; and to establish if there is an endogeneity of exchange rate and GDP with respect to foreign direct investment in the East African Community. The target population included Burundi, Kenya, Rwanda, Tanzania, Uganda, and DRC. However, South Sudan, one of the EAC countries, was excluded from the study because it had not been reporting its data to the World Development Index. The study used non-cxperimental research design, and theories such as eclectic paradigm, Keynesian, and Classical to support study variables. The study used published annual data from 2000 to 2021 to estimate Pooled Panel Ordinary Least Square (OLS) to answer the first objective and estimated Instrumental Variable (V) method and Control Function Approach (CFA) to address the second objective. Diagnostic tests, namely normality test, multicollinearity, and heteroscedasticity were conducted. The study found that several factors, such as GDP, infrastructural development, trade openness, resource endowment, and Foreign direct investment (FDI) in the East African Community depends on how easy it is to do business there, whereas the exchange rate was a drag on FDI. Additionally, the results revealed that there was an endogeneity of exchange rate and GDP with respect to FDI in the EAC. The research suggests that policymakers in the EAC need to prioritize improving economic growth in the region by promoting policies that stimulate economic development. EAC countries can foster an environment favourable for business growth by reducing regulatory burdens, promoting transparency, and enhancing the region's ease of doing business generally. Moreover, policymakers in EAC countries should work to stabilize the exchange rate by adopting policies that promote macroeconomic stability. Further research is suggested to be conducted in other regions to compare the results obtained from this study with those obtained from other regions.en_US
dc.description.sponsorshipKenyatta Universityen_US
dc.identifier.urihttps://ir-library.ku.ac.ke/handle/123456789/28273
dc.language.isoenen_US
dc.publisherKenyatta Universityen_US
dc.subjectMacroeconomicen_US
dc.subjectForeign Direct Investmenten_US
dc.subjectEast African Communityen_US
dc.titleRelationship between Macroeconomic Factors and Foreign Direct Investment in East African Communityen_US
dc.typeThesisen_US
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