Institutional Quality and Its Impact on FDI Inflows in East Africa: Panel Data Analysis

The African Journal of Finance and Management

ISSN : 0856-6372

Dr. Kivyiro, P. (The Institute of Finance Management)

Aticle Publication Date : 02-01-2026


Abstract

The main objective of this study is to examine the influence of institutional quality on FDI inflows in East African countries. Specifically, the study seeks to establish whether control of corruption, government effectiveness, regulatory quality, voice, and accountability have any significant positive impact on FDI. The time series data covering a period of 19 years (2002-2021) was used and it was collected from different sources such as the Fraser Institute, UNCTAD, and the World Bank. The study population consisted of five East African countries, namely Tanzania, Kenya, Rwanda, Burundi, and Uganda. The random effect panel regression model was employed to capture the causal links among the variables of interest. The model was vindicated to be more appropriate by the results of the Hausman test. The results indicated that government effectiveness and regulatory quality have a significant positive impact on FDI inflow in East Africa. Voice and accountability as well as control of corruption, were reported to be insignificant. On the basis of the study findings, it is highly recommended that East African countries should take the following measures to enhance FDI inflows. Firstly, governments should strengthen anti-corruption measures by enacting comprehensive laws and establishing specialized agencies to curb corruption, even if the variable was not found to be significant. Secondly, they should focus on improving regulatory quality through streamlined procedures and transparent frameworks. Thirdly, they should enhance voice and accountability mechanisms, including freedom of expression. Lastly, governments should prioritize measures to enhance government effectiveness, such as capacity building and international cooperation. This can create an attractive investment environment and drive sustainable development in the region.

Keywords

FDI inflows Institutional quality

Citation

Kivyiro, P. (2026), "Institutional Quality and Its Impact on FDI Inflows in East Africa: Panel Data Analysis", The African Journal of Finance and Management, Volume 16 Issue 1 , 0856-6372.
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