The Effect of International Trade on Economic Growth of the East African Community (EAC)
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Mzumbe University
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A Dissertation Submitted in Partial Fulfillment of the Requirements for Award
of the Degree of Masters of Business Administration in Corporate Management
(MBA-CM) of Mzumbe University
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). . 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.
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). . 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.
Keywords
International trade, Economic growth-East Africa Countries