Determinants of Current Account Balance amongst the East African Community Countries: Empirical Evidence from Dynamic Panels Estimation Techniques

Persistent current account disparities and their negative effect on economic growth of countries has for long taken a centre stage of policy discourses across the developed and developing countries. Nonetheless, studies on the subject matter provide unconvincing and varying results. This article considers both the macroeconomic and institutional determinants of current account balance amongst the East African Community countries. The Panel Autoregressive Distributed Lag (ARDL) approach was adopted to analyze the short run and long run effects of macroeconomic and institutional factors influencing current account balance in the East African Community bloc. The findings indicated that macroeconomic factors such as labour force and external debt stock contributes to current account surplus while money supply and inflation rate contribute to current account deficit in the long run. Furthermore, the results indicated that institutional variables such as political stability contribute to current account surplus while control of corruption and rule of law contribute to current account deficit in East African Community bloc in both the short and the long run. Therefore, aggressive diversification policies directed towards increasing trade benefits through establishing policies and incentives that are meant to enhance trade in the areas of manufacturing sector and industrial growth so that the exportation of goods and services overshadow the importation of goods and services should be adopted in order to spur growth and improve the current account balance. Lastly, the East African Community governments are argued to support export-led growth policies by promoting domestic production for exports which is known for attracting foreign exchange earnings and hence a drive to realize current account surplus in the long run.