Effect of trade openness on the economic growth of the East African Community countries: evidence from dynamic Panel ARDL analysis

Abstract

Trade openness plays an immense role in the economic growth process of countries. In East African Community, there is scanty evidence on the role of trade openness in the economic growth process of these countries. This study examines the effect of trade openness on economic growth in the East African Community bloc using panel data obtained from World Development Indicators over a period between 1990 and 2020. Panel Autoregressive Distributed Lag (ARDL) approach was employed to examine the short run and long run effects of trade openness on economic growth in the East African Community bloc. The study found trade openness with a strong positive and a significant effect on economic growth in the long run but with insignificant effect in the short run. Also, the study found gross fixed capital formation with a strong negative and significant effect on economic growth in the long run but with insignificant effect in the short run while gross domestic saving was found with a strong positive and significant effect on economic growth in the long run but with insignificant effect in the short run. The study recommends aggressive diversification policies aimed at increasing trade benefits by putting in place policies and incentives that will boost trade in the areas of manufacturing sector and industrial growth so that exportation of goods and services outweigh the importation of goods and services which is a sure way of realizing significant economic growth and development in the region. Finally, the East African Community governments should promote export led growth policies by supporting domestic production for exports which is known for fetching foreign exchange earnings and hence a push for achieving significant economic growth and development. Key Words; Trade Openness; Economic Growth; East African Community; Panel ARDL