Foreign direct investment (FDI) has grown dramatically over the past two decades, becoming a key instrument for integrating developing countries into the global economy. The countries of the East African Community (EAC) have put in place policies to attract FDI, improving their economic openness, growth rate and financial markets. However, security remains a crucial factor in attracting FDI. The EAC is one of the world’s least secure regions, with problems such as insecurity in eastern Democratic Republic of the Congo (DRC), macroeconomic and political instability, and forced displacement. These security concerns can deter investors and limit the returns of FDI. Using a VAR panel model, the results show that security significantly influences FDI, and that shocks of security, GDP growth, and real interest rates increase short-term FDI before declining. To improve security and attract more FDI, this paper recommends that the EAC authorities increase military spending, implement appropriate security policies, and promote macroeconomic reforms conducive to economic growth. It is also suggested to attract investment in sectors other than mining to diversify the economy and strengthen economic and social resilience.
Keywords: CAE; economic growth; FDI; security; PVAR.
JEL Classification: F43, F21, O55, K32, C33.
