Abstract:
Economic growth has remained an elusive issue in all economies in the world for a
long period of time with empirical studies about factors determining economic growth
giving mixed results in different countries. Common Market of Eastern and Southern
Africa (COMESA) was founded to foster and promoting joint development in all
fields of economic activity and the joint adoption of macro-economic policies and
programmes to raise the standard of living of its peoples among its members states.
Among others, emphasis was put on mobilizing domestic financial resources,
mobilizing international resources, and promoting international trade as the engine of
economic growth. However, it is not clear if these policies are a panacea to economic
growth issue in COMESA countries and economic growth in these countries has
remained a challenging issue in all economies. This study analyzed determinants of
economic growth. The specific objectives were to establish the significant effect of
investor protection, credit to private sector and foreign exchange rates on economic
growth. Further the study sought to evaluate the moderating effect of corruption.
Finally tested the cointegrating relationship. The study was guided by Rostow Stages
of Development, Solow’s Classic Model, Cognitive Psychology of Corruption and
Purchasing Power Parity theory. This study adopted positivist research paradigm.
Explanatory research design was applied for the period 2000 – 2020 for 18 COMESA
countries. Data was collected from World Bank and Transparency International
database. Results indicated that stationarity was observed at levels. Johansen Fisher
cointegration confirmed long run relationship among the variables. Hausman
suggested random effects was appropriate over fixed effects. Multivariate linear
regression assumptions such as normality, multicollinearity, heteroscedasticity, and
serial correlation were tested. From output, Credit to private sector (β = .0267, p =
.000), and foreign exchange rate (β = .0003, p = .004) had a positive and significant
effect on economic growth while strength of investor protection (β = −.4568, p =
.000), and corruption (β = −.2179, p = .037), directly had a negative and significant
influence on economic growth. Further, corruption significantly moderated the link
between investor protection and foreign exchange rates on economic growth with
respective coefficient and their probabilities, (β = −.140, p = .004) and (β =
.0003, p = .000). The study concluded by expounding that an increase in credit to
private sector spurs economic growth. This is because investors are willing to invest
in more risky venture while encouraging safe borrowers. A depreciation of the
currency can make a country's exports cheaper and imports more expensive. The
financial sector, especially in the formal sectors of the economy, is critical in
channeling savings into productive investment. The banking sector is widely regarded
as an important economic conduit for financial intermediation. Credit to private sector
increases a country's productive capacity. The result of this research adds new
knowledge by analyzing the determinants of economic growth among COMESA
countries. Results enables macroeconomists, policy makers and central banks of all
the nations to deeply understand the role of investor protection, credit to private
sector, foreign exchange rate, and the negative impacts of corruption to spur economic
growth.