The impact of foreign direct investment on economic growth: The case of Eastern Africa

It is revealed that foreign direct investment, which is one of the main determinants of the global economy, has various benefits for the host countries. It is claimed that foreign direct investment is an important tool on knowledge and technology transfer, which plays an important role in economic development. Especially underdeveloped and developing countries implement many policies and offer incentives to attract foreign direct investments. In addition, empirical studies examining the economic benefits of host countries from foreign direct investments have reached different results. The results of the latest research claim that some domestic conditions must be created for foreign direct investments to have a positive effect. Foreign direct investments are one of the most important policy tools of African countries in order to ensure economic development. Therefore, it is important to understand the conditions under which FDI inflows occur in Eastern African countries. The general purpose of this thesis is to examine the conditions under which foreign direct investments lead to economic growth in East African countries. The data of selected countries for the period of 2000-2020 were evaluated and interpreted for this purpose. The data reveal that foreign direct investment contributes to economic growth in Eastern African countries with institutional quality, developed human capital and political stability. The effect of foreign direct investment on growth is low in Eastern African countries, which lack political and economic stability, inefficient infrastructure and low institutional quality. The high economic growth rates in Eastern African countries, where foreign direct investment inflows are high, reveal that there is a significant relationship between economic growth and foreign direct investment. These findings reveal that policies aimed at attracting foreign direct investments in Eastern African countries depend on improving domestic conditions in the host country. Keywords: Africa, Foreign Direct Investment, Eastern Africa, Economic Growth, Covid-19, Human Capital