East Africa’s economic growth and macroeconomic indicator variables: An ARDL approach

Economic growth is a crucial indicator of a nation’s production capacity, allowing for evaluation of both its extent and performance. A hopeful growth occurs when macro-­indicators’ annual average rates surpass the average population growth rhythms. However, unpredictable economic growth can negatively impact an economy’s performance due to fluctuations resulting from various factors. Nevertheless, factors driving growth have varying impacts across nations and regions. The study investigates the impact of macroeconomic indicators on East Africa’s growth from 1980 to 2023, aiming to identify correlations and formulate policy recommendations. This study period has been chosen because East African countries like Tanzania, Kenya, Ethiopia, and Uganda began implementing structural adjustment programs, interventionist economic policies, and reforms after the 1980s. The study employed the ARDL approach to estimate the short- and long-­run coefficients. The approach helps to solve the problems of endogeneity and serial correlation in analysis and successfully captures both short- and long-­term relationships. The short-­run model reveals that government spending and exports significantly boost regional growth, while unemployment, FDI inflows, inflation, and imports have a significant negative impact. Moreover, the long-­term model shows that despite the negative impact of foreign debt, inflation, FDI inflows, and unemployment have significantly and positively impacted the regional economy. The study’s findings hold significant policy implications for East Africa’s economy, potentially paving the way for further research on growth dynamics and policy development