Imports in East Africa: Boosting Manufacturing Performance or Impeding Domestic Growth?

Abstract

While the debate surrounding trade protectionism and liberalization continues among policymakers, particularly regarding their impact on the development of domestic infant industries, the literature has largely neglected to provide empirical evidence on this matter. This paper addresses this gap by investigating the effects of imports on the economies of five East African countries. Specifically, the study assesses whether imports promote the development of the manufacturing sector or detrimentally affect the economy by introducing products that compete with domestic alternatives. Through the analysis of panel data from these countries spanning the period between 1997 and 2020, a pooled Ordinary Least Squares (OLS) model is employed to estimate the influence of imports on the manufacturing sector's performance. The results of the study reveal a negative correlation between the importation of goods and services in these five countries and the value added to the manufacturing sector. This suggests that the increase in imports has an adverse effect on the manufacturing sector's performance. This finding implies that imports in these countries do not complement domestic production; rather, they might directly substitute for locally produced goods. Consequently, it is recommended that these countries reevaluate their trade policies to ensure that imports are channeled towards products that can further the development of other sectors within their economies, such as the manufacturing sector.