Trade liberalization and economic growth in the East African community: evidence from dynamic panel analytical methods

Abstract

This study examines the effect of trade liberalization on economic growth in the East African Community using panel data obtained from World Development Indicators between 1990 and 2020. The Panel Autoregressive Distributed Lag (ARDL) was adopted to analyze the short-run and long-run effects of trade liberalization on economic growth in the East African Community. The results divulged that trade liberalization has a strong positive and significant effect on economic growth in the long run but with an insignificant effect in the short run. Furthermore, the results revealed that gross fixed capital formation has a strong negative and significant effect on economic growth in the long run but with an 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. Based on the aforementioned findings, aggressive diversification policies aimed at increasing trade benefits by putting in place policies and incentives that will boost trade in the areas of the manufacturing sector and industrial growth so that the exportation of goods and services outweigh the importation of goods and services are highly recommended. Finally, the East African Community governments are argued to promote export-led growth policies by supporting domestic production for exports which is known for attracting foreign exchange earnings and hence a push for achieving significant economic growth and development.