Financial Integration, Foreign Direct Investment and Economic Growth in East Africa Countries: A Dynamic Panel Data Modelling Approach

Abstract

This study examines the relationship between financial integration, foreign direct investment and economic growth using dynamic panel data modelling in the East African region during the study period ranging from 2000/01 to 2013/14. Arellano-Bover/Blundell-Bond estimation technique had been employed to estimate the model. From the Empirical result of this paper it was concluded that financial integration was found to affect the economic growth in the East African region negatively; whilst foreign direct investment was found to supportive to economic growth in the region. In addition it was revealed in the paper that there is a bi-directional relationship between financial integration and economic growth; and foreign direct investment and economic growth in the region. The researcher also discovered that there is a long run relationship between the variables. The policy implications of these results is so vital just in case that most of the variables can be maintained and controlled by each and every member of the East African countries. The researcher thus finally puts the policy implications based on these results. To maintain the economic growth in the region the researcher recommends to formulate good policies to further enhance foreign direct investment; and need to solve obstacles that hinder the integration process starting  from the grass roots in order to gain the benefits of financial integration in the region.

Keywords: Financial Integration, Foreign Direct Investment, Economic Growth