Analysis of Governance and Export Performance in the Eac

Abstract

This study focused on the link between quality of governance and export performance in the EAC region, using six aspects of governance as explanatory variables for exports in a fixed effects panel model. The results showed a positive relationship between the quality of governance and exports of countries in the EAC in the period 1996 - 2014. Among the six indicators used, political violence, regulatory quality, rule of law, and control of corruption were significant. We also found that better quality of governance improves exports by amplifying the capital and labour elasticities of exports, and by enhancing responsiveness of private sector exports to exchange rate appreciation. We also interacted governance with the control variables in the model to study the mechanism of transmission between the two. The coefficients of the interactions’ models were highly significant for capital, labour and real exchange rate.