The Mediating Effect of Ease of Doing Business on the Relationship between Economic Integration and Foreign Direct Investment in the East African Community
W.M. Muli and
Journal of Finance and Investment Analysis, 2017, vol. 6, issue 4, 2
Developing countries rely on foreign direct investment (FDI) in order to promoteÂ economic development because of their typically low levels of national savings.Â However, low levels of FDI are still a big concern for poor countries. RegionalÂ economic integration is often considered a means to improve member countriesâ€™Â attractiveness to FDI. From the available anecdotal evidence, the East AfricanÂ region ranks as one of the poorest recipients of FDI in the world. This studyÂ sought to establish the mediating effect of Ease of Doing Business on theÂ relationship between economic integration and FDI. The research employed anÂ explanatory research design. East African Community was the unit of analysisÂ consisting of Kenya, Tanzania, Uganda, Rwanda and Burundi. Empirical dataÂ analysis used path analysis (a causal procedure). The quarterly time series dataÂ used spanned the period 2001 â€“ 2015. The study established that formation of anÂ economic bloc leads to more attraction of FDI into a region. However, it is alsoÂ found that for more effective attraction of FDI there must be a conducive businessÂ environment (Ease of Doing Business) within the integrating region. Among theÂ key policy implications, it is recommended that, EAC should make concertedÂ efforts to deepen the integration by taking measures that would intensify intraregionalÂ trade; that there is need to improve investment climate, including havingÂ a business regulatory environment that is conducive for the modernization of theÂ regional economy and attract FDI; More precisely there should be: reconciliationÂ of the regional trade regime and border procedures within the EAC, lowering the transportation costs, scaling down on the effort, time, and funds businesses spendÂ to conform with regulations, eradication of corruption, and safeguarding ofÂ property rights.JEL classification numbers: F30, P45Keywords: Economic Integration, Ease of doing business, foreign directÂ investment, mediation, East African Community
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