Regional Integration and FDI attraction lesson from East Africa

This study investigates the effect of regional integration (RI) on foreign Direct investment (FDI) in East Africa Community countries. The study was conducted with the following objectives: to assess the importance of IR as factors for attracting FDI to East Africa region. To assess the regional challenges of attracting FDI to East Africa, to determine the efforts done by the East African states in attracting FDI in favour of their economies, to determine the contribution of FDI to East African Countries economic development. Generalized least Squares were applied to examine this relationship. The research was carried out using macroeconomic variables. The variables studied were: Gross Domestic Product (GDP), Real Exchange Rate (REER), Trade Openness (OPEN), population (POP) and Work Force (WF). By using Ordinary Least Square and Error Correction Model, time series data from 1980 to 2013 were analysed. The findings showed that GDP, Real Exchange Rate and openness have positive and significant effect on FDL. Although openness and population are found to have in attracting investors from abroad. On the other hand, macroeconomic stability of the economy is crucial and very important factor for investors’ decision making. In this regard, therefore, the study recommends that there must be clear regional strategic plans to improve the entire enabling environment for FDI attraction in East Africa region.