East African Economies Research Articles

Renewable energy transition and regional integration: Energizing the pathway to sustainable development

This study examines the influence of renewable energy transition on sustainable development, with multi-dimensional regional integration as a moderator. Using various regression techniques, a balanced panel dataset was analyzed for 64 countries participating in the Belt and Road Initiative (BRI) and three sub-regions (Asia, Europe, and Middle East-Africa) from 2005 to 2020. The findings reveal a positive relationship between renewable energy transition and sustainable development across the full panel and sub-regions of the BRI. Multi-dimensional regional integration also positively influences sustainable development. The interaction of regional integration with renewable energy transitions positively moderates sustainable development in Asia and Europe but negatively in the Middle East-African economies. Macroeconomic conditions, institutional quality, and population size positively affect sustainable development for the full panel, with mixed effects in sub-regions. Conversely, government consumption negatively impacts sustainable development for both the full and regional panels of the BRI. This study underscores important policy implications for promoting a balanced transition from conventional energy sources to renewables, thereby fostering green economic growth, environmental sustainability, and social inclusion.

How Can Tariff Elimination and Trade Facilitation Affect East African Economies?

The article assesses the potential economic implications of tariff elimination and trade facilitation (TF) in the context of the African Continental Free Trade Area (AfCFTA) agreement for East Africa. Using the most recent GTAP database and computable general equilibrium model, the article provides additional evidence on the socio-economic benefits of the ongoing trade integration process. The results show that the elimination of tariffs would improve economic dynamism in most sectors of activity and household consumption. However, the elimination of tariffs alone would not be sufficient to achieve a significant level of trade integration. From a policy perspective, although a gradual implementation of tariff elimination is more beneficial for the zone, the results highlight the relevance of combining tariff elimination with complementary TF reforms. These reforms amplify the socio-economic gain from the AfCFTA. JEL Codes: F13, F14, F15, E23, C68

Firm-specific Determinants of Aggressive Tax Management among East African Firms

Since tax represents an inflow of revenue to the government and an outflow of revenue to firms, factors that influence the tax planning activities of firms have gained considerable attention among management, shareholders, policymakers and researchers. Following the impact of taxation on an economy and a firm, the study investigated the factors that influence aggressive tax management practices of firms listed in East African economies. Data were collected from 99 firms for an 11-year period, from 2008 to 2018. Both cash effective tax rate and accounting effective rate were used as measures of tax planning. Multiple regression models were used for the estimation. The study results showed that smaller firms are more tax aggressive compared with larger firms, which is consistent with the political cost theory. This finding may alert policymakers and regulatory authorities (for example, revenue authorities) that small firms are most likely to avoid paying taxes compared with larger firms. This might be associated with fewer regulations and enforcements imposed on this category of business. The evidence further demonstrated that profitable firms are less tax aggressive. Consistent with the political power theory, this study has confirmed the view that profitable firms have enough earnings to pay their taxes and thus are less tax aggressive. The study further found that older firms are less involved in tax avoidance. This study has policy implications as it will assist both policymakers and firm management in their decision-making. Shareholders and firm management would benefit by understanding why some firms successfully reduce their tax burden compared to other firms.

The Link between Human Capital Formation and Economic Growth in East Africa

The East African Community members' strategy is focused on achieving smart, sustainable, and inclusive economic growth. This cannot be achieved without the major contribution of skills, knowledge, and innovation, commonly known as human capital formation. It is difficult to believe that these goals could be realized without a good education and training system, training development, better health sector infrastructure, a large diffusion of knowledge in the manufacturing and service sector, and a great effort to create a research-intensive agricultural economy. Most East African economies lack a number of these growth pre-take-off conditions. Employing neoclassical augmented Solow growth theory as the theoretical framework and using panel methodology, the study investigated the role of human capital resources as a factor in stimulating output growth in East Africa. The findings showed that human capital formation was positive and significant to economic growth in East Africa. This study argues that policies and strategies that advocate for accelerated public investment in human capital development will promote productivity growth and further stimulate resilient economic growth in the East African economies.

Determinants of Money Demand: An Empirical Examination

Tremendous changes have been witnessed in the developing countries' macroeconomic landscape over the past few decades. For instance, several forms of financial innovations have been witnessed in the sub-Saharan African region over the past decades. These changes can shift various parameters of the money demand model and function. However, few empirical studies have been carried out in this scope in East Africa. It is against this backdrop that this study will employ the panel estimation technique to analyse the major determinants for money demand in East Africa for the period 2007 to 2020. The study will consider mobile money transactions, ATMs, inflation, interest rates and economic growth variables. The result of the pooled ordinary least squares estimator has identified mobile money, ATMs, and economic growth has a positive influence on money demand while interest rates negatively influence the money demand function. The result has identified the role of monetary authorities and policymakers in controlling use of mobile money, ATMs, income and interest rates to grow money demand in East African economies.

Government Capital Expenditure and Economic Growth: An Empirical Investigation

The purpose of this study was to investigate how capital government expenditure contributes to economic growth in East African countries. Many past empirical studies on the relationship between public capital spending and output growth show inconsistent results and mainly focus on total public expenditure. Hence, this study aims to determine the impact of public capital spending on economic growth using panel data series for East African countries. The secondary data sources were statistical abstracts and World Bank reports. To check if the variables have a relationship, this study used the panel least squares (OLS) estimation technique. The results showed that capital spending has a positive and significant effect on economic growth in East Africa. This research suggests that in East African economies, the strategy and policy of increasing government spending on the capital budget to promote economic growth will be appropriate, but fewer funds should be channeled towards recurrent programs.

POTENTIAL EFFECTS OF FINANCE 4.0 ON THE EMPLOYMENT IN EAST AFRICA

Two of the five fastest-growing economies in the world were in the East African region in 2019. The region’s share within the economic growth of Africa rose from less than 20% in 2018 to more than 32% in 2019. Despite the difficulties in 2020 the eastern part of Africa seems to be keeping its status as the continent’s fastest-growing region. Digitalization and the connected structural transformation is one of the main drivers of growth in the services sector worldwide. In this study we analyze the status and movements of industry 4.0 and Finance 4.0 developments and their effects on the employment in the East African region. We found three main approaches based on the literature sources on Africa’s future industrial development ways. In case of finance 4.0, countries like Uganda or Kenya reached considerable results in financial inclusion; thus, East African economies and societies now have an improved access to international financial markets. Another significant development is East Africa’s status as global leader in mobile money services, increasing broad access to financial services. With the help of digital solutions, entrepreneurs and businesses can reconsider their business models which can be more competitive, sustainable, and better connected to other sectors of the economy. In this paper we investigated the macro- and micro-level effects of the digitalization on the employment and identified the possible scenarios. Our conclusion is that with affordable and stable finance 4.0 solutions and a strong institutional framework, East African enterprises can reduce poverty, increase employment and stimulate inclusive growth.

Employment-Growth Nexus within the East African States

This paper examines the causal link between economic growth and employment growth in the three traditional East African countries. Time series quarterly data for the period 2001-2018 are used to study the underlying linkage. The study employs the ARDL bounds testing approach to cointegration to estimate the short run and the long run national employment elasticities of economic growth. Estimates show that there is no long run causal link between economic growth and employment growth for Uganda and Tanzania, but there is along run causal link between the two variables for Kenya. Estimates further show that there is no short run causal link between economic growth and employment growth for Uganda and Kenya but there is a short run causal link between the two variables for Tanzania. In all countries, estimates indicate that the employment intensity of economic growth is less than unity suggesting that the economic growth in the three traditional East African countries has not been employment intensive. The study results provide empirical evidence of the inability of economy expansion of the East African economies to create substantial opportunities for employment for the East African labour force. Results suggest that East African governments need to design policies and implement projects and programs that are pro-poor and are growth inclusive in order for the economy expansion to create more opportunities for job creation.

Institutional quality and economic growth in East African economies

Abstract. This study examines the effect of quality of institutions on economic growth in five East African countries using panel data for the period spanning from1996 to 2015. Fixed effects (FE) and random effects (RE) models were employed for estimation. Using Hausman test, FE was earmarked to be more appropriate model for this study. The empirical findings show that the quality of institution significantly impacts on economic growth. Political stability, government effectiveness, rule of law and control of corruption in particular are significant variables. Regulatory quality, voice and accountability indicate insignificant effect on growth. The results suggest that governance that promotes strong institutions is an important condition for economic growth. Particular focus should be focused on enhancing political stability, government effectiveness, rule of law and control of corruption so as to attain economic development. Keywords. Institutional quality, Economic growth, East Africa, Fixed effects. JEL. O43, E20, C33.

Central Bank Independence in East African Countries: The Case of Kenya, Uganda and Tanzania

Central Bank Independence (CBI) enables monetary policymakers to act in a timely and appropriate manner in the pursuit of a single price stability objective. This paper presents a critical assessment of the legal and actual independence of central banks in three East African economies. It applies one de facto and four de jure measures of CBI and reveals that the Central Bank of Kenya (CBK) and Bank of Tanzania (BOT) had a higher actual independence in their early years of formation than in 1990-2006, while the Bank of Uganda (BOU) had a higher actual independence in 1986-2006 than in 1979-1986. The legal independence of the CBK and BOT has improved with the stipulation of a single policy objective, constrained finance amount and market determined interest rate on loans to government, as well as improved accountability. However, the method of appointment for governors, the term of office and dismissal of the Chief Executive Officer (CEO) of the two central banks as well as the BOU reflect less independence. The amended statute of the BOU is less reformed for it does not specify a single policy objective, allows a higher amount of loan to the government, and is less accountable.

Quantifying Mega-Regional Spillovers on Excluded Countries

The major area of activity in international trade regulation is currently within the mega-regional trade negotiations – the Trans-Pacific Partnership, the Transatlantic Trade and Investment Partnership, the Regional Comprehensive Economic Partnership, and the Trade in Services Agreement. These negotiations have important implications for excluded parties, including East African economies, which are themselves engaged in mega-regional negotiations within an African context – the Tripartite Free Trade Agreement talks, which aim to form a trade bloc of 23 countries, and the Continental Free Trade Area formally launched in June 2015. Preferential trade agreements generate well-understood spillovers on third parties, including the erosion of preferences under the World Trade Organization-authorized General System of Preferences and the competitive shock from the internal productivity improvements induced within the free trade zones. However, the ambitious regulatory agenda being addressed in the mega-regionals raises additional spillovers in the form of new and likely more demanding standards and procedural requirements to access global markets, as well as possibly new positive spillovers. This study addresses these issues both in qualitative and quantitative terms, with a focus on East Africa.

Government administrative burdens on SMEs in East Africa: reviewing issues and actions

The important macroeconomic reforms achieved in East African economies (Kenya, Tanzania and Uganda) during the late 1980s and early 1990s have failed to deliver the magnitude of private sector growth and increased employment expected. Governments in the region have begun to recognize that lower‐level policies and administrative procedures impose significant constraints on private sector development, stemming primarily from the command and control bureaucracies that characterised colonial governance. There are three priority areas for administrative reform: business licensing and registration, tax and customs procedures and specialised approvals. Also discussed are the problems of the special position of the informal sector, the impact of corruption and access to commercial justice.

An Overview of the Performance of the East African Economies since 1985: Implications for the New Initiative on East African Co-operation

Abstract

The Economic Literature for Kenya, Tanzania, Uganda, 1974-1980: An Analysis

This article arises out of our experience in the compilation of a bibliography on the East African economies of Kenya, Tanzania, Uganda. Approximately one-quarter of the items were gathered between 1976 and 1979 by Killick, and the compilation of the remainder was organized by Finucane and Rupley in 1980 and 1981. The classification system was largely designed by Killick. Nearly all the work was carried out at the University of Nairobi. The bibliography is to be published by G.K. Hall, Boston, as Tony Killick, Lawrence Rupley, Brendan Finucane, The Economies of East Africa: 1974-1980. This present compilation serves to update Tony Killick's The Economies of East Africa( Boston: G.K. Hall, 1976), which covered the 1963-1974 time period. For the most part, this volume takes up where the earlier one ended, although items missed in the earlier one are included herein.