Income Convergence in the East African Community

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dc.contributor.authorGithuku, Simon
dc.contributor.authorOmolo, Jacob
dc.contributor.authorMwabu, Germano
dc.date.accessioned2022-05-23T12:10:20Z
dc.date.available2022-05-23T12:10:20Z
dc.date.issued2018-01
dc.descriptionA Research Article in the African Journal of Economic Reviewen_US
dc.description.abstractThe East African Community partner states aim to establish a Monetary Union by 2023. As advanced by the optimum currency area theory, countries seeking to enter into a monetary union should be as similar as possible to reduce their susceptibility to adverse economic shocks. The East African Monetary Union Protocol signed in 2013 stresses the need for convergence of macroeconomic variables as important preconditions before forming the monetary union. The benchmark macroeconomic indicators include a headline inflation rate of eight per cent, a fiscal deficit of three per cent of the country’s gross domestic product on net present value terms, a debt to gross domestic product ratio of 50 per cent and maintenance of a 4.5 months’ reserves of import cover. Article 82 (1) of the East African Community Treaty also compels partner states to work towards harmonizing their macro-economic policies especially those related to interest and exchange rates, fiscal and monetary policies. However, as argued by many scholars, nominal convergence alone cannot indicate how well countries will perform once they are in a monetary union. The criteria also fail to distinguish the countries that constitute an optimal currency area. An autoregressive distributed model was applied in regression analysis. Empirical findings supported the presence of conditional convergence and that per capita gross domestic product growth was positively influenced by physical capital and nominal exchange rate depreciation and negatively affected by human capital and inflation rate. From the foregoing, it can be concluded that reduction of income differences among the partner states can be fostered through increased investments in physical capital, maintenance of a competitive exchange rate regime and a low inflation rate regime.en_US
dc.identifier.citationGithuku, S., Omolo, J., and Mwabu, G. (2018). “Income Convergence in the East African Community”, African Journal of Economic Review, Volume VI, Issue I (January), pp 87-102en_US
dc.identifier.issn2453-5966
dc.identifier.issn1821-8148
dc.identifier.urihttp://ir-library.ku.ac.ke/handle/123456789/23775
dc.language.isoenen_US
dc.publisherAfrican Journal of Economic Reviewen_US
dc.subjectUnconditional convergenceen_US
dc.subjectConditional convergenceen_US
dc.subjectSolow modelen_US
dc.subjectOptimum currency areasen_US
dc.subjectAutoregressive redistributed lag modelen_US
dc.titleIncome Convergence in the East African Communityen_US
dc.typeArticleen_US
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