Determinants of Export Performance in East Africa Countries

Abstract

The main objectives of this study are to identify and analyze variables which have impact on export performances of seven East Africa countries and suggest possible solutions to improve export performance in East Africa. Using data from World Development Indicators database we conducted panel data analysis for the period of 1990-2014. Empirical results show that labor force, industrialization, foreign direct investment, and exchange rate have positive impact on export value. On the other hand, inflation has negative impact on export performance while GDP growth is the only variable that does not affect the export value of East Africa countries. Finally, we suggest some recommendations, including the need of replacing agricultural exports by the industrial export, improving infrastructural facility as well as the quality of human capital and the need of policies for attracting international investors. Foreign direct investment had also positive effect on export and was significant at 1% level. Increase of foreign direct investment by 1% raised the value of export on by 0.157%. Our finding is similar to that of Sharma (2000) who investigated the determinants of export performance using yearly data for the period 1970-1998 in India and found that the coefficient of foreign direct investment had a positive sign. Exchange rate was also significant to the value of export. The coefficient of exchange had positive sign at the 5% level. Result indicates that the increase of exchange rate in 1% would rise about 0.002. According to Sharma, a fall in domestic prices due to exchange rate depreciation makes exports cheaper in the international markets resulting into their increased demand. Oztang (2000) also had similar studying and revealed that rate of real exchange is a statistically significant determinant of export performance.