Effect Of Constructs of Intra-African Foreign Direct Investment on Economic Growth in East African Countries

Abstract

The growth of the economy is the process of expanding the economies of nations, the macroeconomic parameters, particularly the gross domestic product computed periodically mostly annual basis to reflect changes in economic growth across time. The economic growth of a nation is linked to macroeconomic indicators like foreign direct investment growth, gross capital formation, labour force, technology, and institutional quality. This study sought to determine the influence of intra-African foreign direct investments on economic growth in East African countries. The specific objectives of the study were to determine the effect of Intra African foreign direct investments on the economic growth of selected East African countries. Secondly, to determine the effect of gross capital formation on the economic growth of selected East African countries. Thirdly, to determine the effect of institutional quality on the economic growth of selected East African countries. The fourth objective was to analyze the effect of labor force on the economic growth of selected East African countries. Finally, the study sought to determine the effect of technology on the economic growth of selected East African countries. The study relied on a causal research design. The study population involved 5 East African countries for a period from 2000 to 2020. Further, the study utilized secondary data and the data was analyzed using Stata. The correlation results indicated that the correlation between FDI and economic growth was positive and moderately strong and positive whereas it was strong and statistically significant with gross capital formation. Furthermore, the correlation between labour force and economic growth was positive, significant, and moderately strong while that of institutional quality and economic growth was strong, positive, and statistically significant. Finally, technology had a strong, positive, and significant correlation with economic growth. The regression results for the variables FDI, GCF, labour, institutional quality and technology portrayed a positive and statistically significant linear relationship with economic growth. The study concludes that all these variables are significant determinants of economic growth of the selected countries in East Africa. The study recommends that the countries within East Africa should cooperate and open its borders to allow easy movement of technology and labour within and across the borders to boost foreign inflows to either of the selected East African countries. The countries should create a favorable environment for business and investments.