THE DETERMINANTS AND THE IMPACT OF TRADE OPENNESS ON FOREIGN DIRECT INVESTMENT IN EAST AFRICA
Journal: Advanced Management Science (AMS)
Author: Emmanuel Nketiah1*, Gibbson Adu-Gyamfi1, Mavis Adjei1, Bright Obuobi1, Robert Brenya2
This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited
The underlying purpose of this study is to determine the impact of trade openness on foreign direct investment. Panel data from 2005 to 2018 of 15 East African countries are employed by this study. Feasible Generalized Least Squares (FGLS) estimation, unit root test, Pooled Ordinary Least Squares (OLS), Fixed Effect, and Random effect test with panel data in was adopted in testing for the underlying hypothesis. Based on the evidence from the Hausman test and Breusch and Pagan Lagrangian multiplier tests, inferences and corresponding recommendations are made based on the results from the Random Effect (RE) model. In analyzing the determinants of foreign direct investment (FDI) using the random effect test, trade showed a significant relationship with foreign direct investment (FDI). Although Real effective Exchange rate (REER), trade openness, and inflation demonstrated a positive relationship with FDI, real effective exchange rate and inflation established no significant relationship with FDI among East Africa. It is therefore recommended that governments of these countries should implement measures and policies to manage trade to ensure robust economic growth through FDI. Concerning inflation, governments of East Africa countries can put in measures to restrict and control inflation since an acceleration in inflation has negative influences on foreign direct investment (FDI).