ABSTRACT
One of the main purposes of the EAC is to promote equitable economic development through the attraction of foreign direct investment (FDI). However, deep discrepancies exist between key FDI determinants of Partner States. Despite this, they 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 tends to cause agglomeration of FDI in the territories of those Member States which present the best comparative advantage in terms of FDI determinants. Accordingly, one or two EAC Partner States would end up attracting the majority of FDI. This may undermine the Community’s goal to ensure equitable distribution of FDI between its Member States. Consequently, it could be that the worse-off Member States might consider exiting the Community, which might in turn lead to the collapse of the EAC, as in the past, and for similar reasons. To ensure equitable FDI distribution across the Community, this chapter suggests that the subsidiarity principle should be leveraged to transfer competence on FDI from the Partner States to the EAC as an intergovernmental institution, to decide which foreign investors are allowed in and under which conditions their investments are established and protected.
