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The main objective of this study is to determine the effect of international trade on
the economic growth of the East African Countries (EAC). The study used panel
data of the EAC countries for the period of (1990 to 2017). The panel consists of
140 observations collected from the World Bank database (GDP, inflation), World
Trade Organization (import, export, terms of trade, trade openness), The World
Integrated Trade Solution (export, import, GDP, terms of trade, trade openness). The
study used pooled, random effect and fixed effect model. Hausman test was used to
select random effect on favour of fixed effect estimation for the panel data.
Furthermore, a separate analysis for the time series data in Kenya was performed. In
this regards, the cointegration test was performed and then estimated the Vector
Error Correction Model (VECM).
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The study revealed that only trade openness has a significant effect on economic
growth of the EAC countries. Moreover, the study revealed that trade openness;
inflation rate and total exports have a significant effect on the economic growth in
Kenya
The study concluded that only trade openness has a negative significant effect on the
economic growth of EAC countries. On the other hand, Kenya’s economic growth is
significantly negatively affected by trade openness, and inflation rate, while imports
affect Kenya’s economy positively. Indeed, Kenya has performed well in
international trade as compared to other EAC countries. The study recommends that
the rest of the EAC countries ought to learn how Kenya has for many years
consistently managed to keep being above the rest of EACs economically. |
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