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The Balance of Trade-Economic Growth Nexus in a Panel of Member Countries of the East African Community

  • Ferdinand Nkikabahizi
  • Theogene Rizinde
  • Mathias Karangwa
Chapter

Abstract

This paper empirically examines the relationship between balance of trade and economic growth in the East African Community’s (EAC) member countries. It investigates this issue in a panel of EAC member countries (Rwanda, Uganda, Kenya, Tanzania and Burundi) for the period 1991–2015. Data on GDP growth, exports, imports, BOT, gross capital formation, FDI, exchange rate and the labor force participation rate was collected from the World Development Indicators (WDI). Different tests were done for the panel unit root (IPS, MW, Breitung and LLC) test, the results of which show that except LFPR which was I(2); the other variables were I(0). The results of the Housman test show that there was no systematic difference between the fixed effects model (FEM) and the random effects model (REM). Further, EXP, LFPR, GCF, FDI and D were positively connected with RGDP in five EAC countries; in short they are the key pillars of the growing economy in the region under study. This means that an increase of 1 percent in EXP, LFPR, GCF, FDI and D leads to an increase in RGDP by 0.302, 3.716, 0.532, 0.0934 and 0.702 respectively. Similarly, an increase of 1 percent in the remaining variables (IMP, BOT, and EXR) which are negatively associated with RGDP, leads to a decrease of 0.367, 0.786 and 5.338 respectively. Researchers have introduced dummy variables for regional economic integration, the results of which show a positive relationship but not a statistically significant one. We did the Pasaran CD and Breusch-Pagan LM tests for cross-sectional dependence which show that there was no cross-sectional dependence across countries.

Keywords

Balance of trade Economic growth Panel stationary EAC, panel model 

JEL Classification Codes

E4 E5 F15 F21 F4 

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Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Ferdinand Nkikabahizi
    • 1
  • Theogene Rizinde
    • 2
  • Mathias Karangwa
    • 3
  1. 1.School of EconomicsUniversity of Rwanda, College of Business and EconomicsButareRwanda
  2. 2.School of Economics, Department of StatisticsUniversity of Rwanda, College of Business and EconomicsButareRwanda
  3. 3.National Bank of RwandaKigaliRwanda

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