Abstract:
The study sought to determine the relationship between intra-regional investment and
intraregional trade flows within the EAC over the period 2008-2016. To do this, we considered
bilateral flows from five EAC countries over the period 2008-2016. The study employed the
system Generalised Method of Moments (SGMM) estimation method. The results show a
strong relationship that bilateral investment flows positively influence intra-EAC trade flows
establishing a complementary relationship, however, the impact is minimal. Further, the shift
from substitution to complementary in the later years implies lack of significant
complementary linkage. Consequently, countries provide specific investment incentives to
key sectors of the economy that drive intra-EAC trade such as manufacturing to attract FDI
and Cross-Border Investments (CBI). Additionally, there is need to track full implementation
of the Customs and Common Market protocols in order to develop the region as a Common
Investment Area with similar laws and policies favourable to FDI and growth of local
investments.
