This study explores the effect of political stability on foreign direct
investment inflows in the East African Community (EAC), alongside other
key macroeconomic factors (GDP, trade openness, exchange rate, and
inflation). Using panel data models, we analyse annual data from seven EAC
states over a 10-year period (2013–2022). Findings reveal that while political
stability is positively correlated with FDI inflows, it lacks statistical
significance. Economic growth, on the other hand, emerges as a key
significant driver of FDI, confirming that a strong economy boosts investor
confidence. Trade openness is also significantly and positively associated
with FDI inflows, underscoring its role in attracting capital, facilitating
technology transfer, and enhancing knowledge flows into the region.
Exchange rates show a positive and insignificant association with FDI
inflows, while inflation similarly exhibits a positive but insignificant
correlation, suggesting that moderate inflation can attract investment, but
prolonged high inflation may deter foreign investors. This study is unique in
its focus on political stability as a determinant of FDI inflows within a region
that includes Somalia, Congo and South Sudan, three of the thirteen most
violence-affected countries globally. The study recommends ways that the
EAC should address the root causes of political instability, including policies
aimed at reducing poverty, combating corruption, and expanding
opportunities for youth and marginalized communities. Member states
should also advocate policies that facilitate movement of goods, services, and
assets to enhance regional trade integration and attract foreign investments.
Keywords: political stability, foreign direct investment, East African
Community, economic growth, Somalia, panel analysis