Kagarura Willy Rwamparagi, Nahabwe Patrick Kagambo John
Kabale University, Kabale, Uganda
Abstract
This study empirically examines fiscal policy measures and trade balance dynamics in East Africa from 2000 to 2021. Using a quantitative research design and structural equation modeling (SEM), the research analyzes the complex relationships among key economic variables with balanced panel secondary World Bank data. The conceptual framework incorporates the dependent variable (trade balance), while the independent variables include international trade tariffs, government spending, and subsidies. Mediating variables are exports as a capacity to import and transport services. Moderating variables are foreign exchange rates, foreign direct investment (FDI), and GDP growth. The empirical analysis involves regression, mediation, moderation analyses, and robustness checks to validate the significance of these relationships. Error correction techniques reveal statistically significant relationships among the variables. The results show an adjusted R-squared of 0.965426 and Durbin-Watson statistic of 2.287933, indicating the model's robustness. Key findings highlight that government expenditure, GDP growth, foreign exchange rates, and FDI positively and significantly impact the trade balance. Specifically, a 10% increase in these factors results in a 17.64, 0.28, 11.47, and 1.31 percent increase in the trade balance, respectively. While taxes on international trade, subsidies, transport services, and exports as a capacity to import had statistically significant negative relationship with trade balance. A 10% increase in these factors results in a 6.49, 0.13, and 0.21 percent reduction in the trade balance, respectively. Additionally, the simultaneous interaction between government expenditure and exports as a capacity to import is both positive and significant, with a 10% increase in this pair alone leading to a 47.88% increase in the trade balance, and is supported by an adjusted R-squared of 0.689304 and a Durbin-Watson statistic of 2.001577. The study recommends that governments invest in infrastructure to improve transport and logistics, optimize taxation policies to boost competitiveness, and promote economic diversification, implement capacity-building programs to help local industries meet international standards, and strengthen trade facilitation measures to reduce barriers and promote smoother trade transactions.
Keywords: Fiscal Policy, Trade Balance and East Africa
Journal Name :
EPRA International Journal of Economics, Business and Management Studies (EBMS)

VIEW PDF
Published on : 2025-01-26

Vol : 12
Issue : 1
Month : January
Year : 2025
Copyright © 2025 EPRA JOURNALS. All rights reserved
Developed by Peace Soft