Impacts of Foreign Direct Investment on Economic Growth in the East African Community (EAC): Empirical Evidence from Burundi

Abstract

This study analyzes how Foreign Direct Investment affects the rate of economic development among nations in the EAC with the empirical evidence of Burundi. The paper indicates that there is a link between foreign direct investment(FDI), gross domestic product(GDP), human capital, and openness with support of yearly time-series data from 1989 to 2017. The results from the Vector Error Correction Model (VECM) analysis technics discover that all the variables in long-term they move together. The findings also discovered that there is short-term causality running from GDP and human capital to FDI and no short-run causality found from openness to FDI as a result of Burundi’s policies that do not implement market seeker FDI. For VECM validation, the paper went through some post estimation diagnostic tests such as Lagrange multiplier tests and Jarque-Bera test, the results did not indicate any autocorrelation among the variables as the residuals were normally distributed. Openness being an important factor to attracting foreign investors, it is very crucial for Burundi to revise its trade policies and encourage a conducive environment that promotes foreign investment penetration by promoting and encouraging both domestic and foreign investors and keep improving human capital for more FDI attraction as a goal for Burundi economic growth.