Paper short abstract:

The striking asymmetry between the economies of EAC States has always been a strong determinant of inequitable distribution of FDI among them. Could the setting up of an adequate legal and institutional framework be a good step towards a lasting solution? That is what this paper tries to explore.

Paper long abstract:

Created in 1999, the East African Community (EAC) is regional integration community constituted by six sub-Saharan countries. The purpose of this community is to promote equitable economic development through the attraction of foreign direct investment (FDI). However, although all EAC member states are developing countries, there exist deep discrepancies between their economies regarding key FDI determinants.

Despite these discrepancies, the member states have adopted a common market consecrating the free movement of goods, persons, services and capital. Yet, according to well tested New Economic Geography theory, a common market between highly asymmetric economies tend to cause agglomeration of FDI in the territories of the common market's member states that present the best comparative advantage in terms of FDI determinants.

Accordingly, only one or two EAC member states will end up reaping all the benefits of the common market in attracting the majority of FDI. This would definitely jeopardize the attainment of the EAC goal to reach an equitable distribution of FDI between its members states. As a consequence, the worse-off member states would be tempted to defect from the regional integration, which might lead to the collapse of the EAC just as it already happened in 1964 and in 1977 against the background of economic imbalances claims between member states.

This paper takes this threat seriously and examines which legal and institutional framework stemming from the EAC Treaty could be suggested to mitigate the divisive nature of FDI in the EAC.