Determinants of Foreign Direct Investment Stock to Countries of the East African Community

Abstract

Foreign Direct Investment (FDI) stock to Africa and its sub-region has increased steadily since J980 but East African Community (EAC) has recorded the least increment. These insights therefore prompted this empirical study to investigate the determinants of FDI in East African Community's jive countries i.e. Kenya Uganda, Tanzania, Rwanda and Burundi, to jind out why is the region recording very low increase of FDI. The study employed panel data analysis methods. The study used trade openness, Gross Domestic Product growth, Gross Domestic Product per Capita, telephone line (per J 00 people); a proxy for infrastructural facilities, inflation, return on investment and natural resource endowment as explanatory variables and the stock of FDI as dependent variable. The analyzed data covered the period J99J-20J2. The study finding showed that trade openness, inflation, and infrastructure facilities were the most significant determinants of foreign direct investment to EAC countries. Therefore, the study recommended that EAC countries should put in place policies that aim at controlling inflation, liberalization of economies to make entry offoreign investors easy and rehabilitation and development 0/ new infrastructure facilities. Having such policies in place, FDI to the region will improve and these countries will reap the benejits associated with increased FDI.