EFFECTS OF BALANCE OF PAYMENT ON ECONOMIC GROWTH OF EAST AFRICAN REGION COUNTRIES
Abstract
This research study examined the effect of international trade balance on economic growth of East African region in view of trade imbalances in the region. In order to achieve the research objectives, a methodology framework of panel regression analysis was undertaken. For research purposes the study employed descriptive research design. The study focused was East African region and relied on secondary data obtained from the World Bank website, ADI and WDI website. A checklist developed based on the research questions of the study was used to collect data on the values of the variables in the corresponding period under study. The time series data ranged from 1995 -2020. The data was organized through excel and later imported to E-views 12 software for analysis. Regression, descriptive statistics and analytic statistical methods was employed in the analytical process and results presented in tables, graphs and figures for clarity and ease of understanding. The findings revealed a long-run relationship among all the variables. Moreover, all the variables under consideration were found to have long run significant impacts on economic growth in East African region. Time series properties were tested such as the presence of unit roots and co-integration of the variables to ensure that spurious results would not result. A part from the log of GDP which was stationary at level all the other variables under consideration were non-stationary at level but became stationary at first difference hence integrated of order one. The study findings led this research study to conclude that the contribution of trade to the economic growth of East African region countries is mainly a function of trade balance in merchandise, service trade balance and international financial transactions. For outward-oriented strategy to have much larger impact on economic growth, the region should modify the composition of trade by switching from exports of raw materials and semi-manufactured goods to high valued-added goods. Furthermore, trade policy should promote investments in capital intensive sectors and develop human capital that can absorb technologies coming from advanced countries. Finally, there is need for sustained financial development through digitization and adoption of new financial innovations risk detection mechanisms in order to ease trade and insulate respective economies from external financial shock.
Key Words: Trade Balance, Visible Trade Balance, Invisible Trade Balance, International Financial Transactions, Economic Growth
CITATION: Muasya, S., & Muturi, W. (2023). Effects of balance of payment on economic growth of east african region countries. The Strategic Journal of Business & Change Management, 10 (2), 289 –306.
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DOI: http://dx.doi.org/10.61426/sjbcm.v10i2.2606
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