Trade Liberalization and Economic Growth in Eastern Africa
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Date
2025-08-04
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AAU
Abstract
This study investigates the impact of trade regulations—specifically tariffs, foreign exchange rates,
WTO membership, foreign direct investment (FDI), net exports, and terms of trade—on economic
growth in eleven East African countries over the period 2000 to 2023. Using panel data and robust
econometric techniques, including the Driscoll-Kraay standard error regression, the study accounts
for issues of heteroskedasticity, autocorrelation and cross-sectional dependence common in macro-
panel data. Descriptive statistics and trend analysis were first employed to explore the economic
performance of the region, followed by fixed effects and ultimately Driscoll-Kraay estimations to
determine the relationships between trade-related variables and real GDP. The findings reveal that
net exports and terms of trade have a strong, positive, and statistically significant relationship with
economic growth. In contrast, FDI and tariff rates are negatively associated with real GDP,
although both are statistically significant. Surprisingly, WTO membership was also found to have
a significant but negative effect on GDP, suggesting that trade liberalization alone may not be
sufficient to drive growth in the absence of domestic institutional and structural reforms. The
foreign exchange rate had a negative but statistically insignificant effect on growth. Based on these
findings, the study recommends that East African countries pursue more strategic trade and
investment policies, enhance institutional capacity for engaging in global trade frameworks, and
focus on improving export competitiveness and regional trade integration. These measures are
essential for translating trade openness into sustained economic development in the region