Effects of foreign aid on economic performance of East Africa Community (1990 to 2016)
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The purpose of the study was to assess the effects of foreign aid on the economic performance of East African Community (EAC). Specifically, to analyse the effects of current and previous flows of foreign aid on GDP, assess the effects of trade openness, FDI inflows and remittances paid to foreigners on GDP and establish the effects of EAC integration on GDP. Panel data econometrics techniques were employed to carry out empirical analysis on annual data of EAC countries for the period between 1990 and 2016 obtained from World Bank. The empirical results indicate that foreign aid improves economic performance. One percent increase in foreign aid in the previous year is most likely to lead to a 0.183 percent increase in GDP of the current year at one percent level of significance. Similarly, remittances paid to foreigners improves economic performance significantly. One percentage increase in remittances paid improves GDP by 0.098 percent. The results also indicate that trade openness and foreign direct investment inflows affect economic performance positively. The results also indicate that EAC regional integration has been beneficial to its members in terms of economic performance at one percent level of significance. Membership to EAC relates to US$ 486,565 increase in a country’s GDP, keeping other factors constant. The results also indicate that, without the other factors, Kenya would have a higher GDP (US$ 21.307 million) than the other countries (Tanzania at US$ 12.969 million, Uganda at US$ 7.440 million, Rwanda at US$ 3.170 million and Burundi at US$ 2.632 million). The researcher concludes that foreign aid, remittances paid to foreigners and regional integration improve economic performance significantly. EAC should revise their vision 2050 target of reducing ODA and attract more foreign aid inflows into the region. EAC countries are encouraged to attract highly skilled foreigners to work or invest locally to increase personal remittances paid. South Sudan and other countries intending to join the regional bloc should be encouraged in order to benefit from the EAC integration.