The Determinants of East African Economic Growth

Silveria Mukwandiga Murungi; Kenneth Okiro; Winnie Nyamute; Martine Oleche

doi:10.19044/esj.2023.v19n16p77

Silveria Mukwandiga Murungi University of Nairobi, Kenya
Kenneth Okiro University of Nairobi, Kenya
Winnie Nyamute University of Nairobi, Kenya
Martine Oleche University of Nairobi, Kenya

DOI: https://doi.org/10.19044/esj.2023.v19n16p77

Keywords: Government debt, Interest rates, Fiscal policy, Economic growth

Abstract

This paper focuses on examining the effect of government external debt on economic growth, investigating the effect of interest rate on economic growth, establishing the effect of government domestic debt on economic growth, and examining the effect of budget deficit on economic growth. The study was carried out for three East African countries, Kenya, Tanzania and Uganda, over the study period of 1980-2019. Autoregressive Distributed Lag (ADL) Panel Approach was used to specifically establish the effect of government external debt, interest rate, government domestic debt, and budget deficit on economic growth. Pooled Mean Estimator (PMG) was used to estimate both the general and full sample model. The results showed that in the long run, government external debt and interest rate had negative but not statistically significant effect on economic growth for the three countries. On the other hand, government domestic debt and budget deficit had positive effect but not statistically significant effect on economic growth. The results of the short term showed that government external debt, government domestic debt, and budget deficit had a negative but not statistically significant effect on economic growth for the three countries, while interest rate had a negative and statistically significant effect on economic growth for the three countries. Firstly, in order to achieve a positive economic growth, it is recommended that the East African countries, Kenya, Tanzania and Uganda, should design and implement debt, interest rates, and budget deficit policies to fit and align with other macroeconomics policies. Secondly, they should restrain their expenditure to sustainable levels to maintain a balanced if not surplus budget. Thirdly, they should endeavor to put economic and legal framework in place to eradicate corruption of public funds. Fourthly, they should design and implement policies to broaden tax base to support a balance budget. Fifthly, the governments should avoid a crowding through huge borrowings in the domestic market at the expense of the private sector.

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