Journal of Finance and Investment Analysis

The Moderating Effect of Economic Growth on the Relationship between Economic Integration and Foreign Direct Investment in the East African Community

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  • Abstract

    This paper investigates the moderating effect of economic growth on the relationship between economic integration and foreign direct investment in the East African Community. Developing countries rely on foreign direct investment (FDI) to supplement their low levels of national savings in order to promote economic development. However, low levels of FDI are still a big concern for poor countries. Regional integration is often considered a means to improve member countries’ attractiveness to FDI. From the available anecdotal evidence, the East African region ranks as one of the poorest recipients of FDI in the world. Finance literature records that economic growth as an indicator of the investor potential rate of return as well as population purchasing power catalyzes the rate of foreign direct investment attraction. The research employed an explanatory research design. East African Community was the unit of analysis involving Kenya, Tanzania, Uganda, Rwanda and Burundi. Empirical data analysis employed hierarchical regression analysis. The quarterly time series data used spanned the period 2001 – 2015. The study establishes that economic growth enhances the capacity of economic integration to attract FDI into a region.

    JEL classification numbers: F30, P45
    Keywords: Economic integration, Economic growth, Moderation, Foreign direct investment, East African Community