Heterogeneous effects of inward investment, trade and funds transfer on improved misery index in EAC-6

This study examined the impact of Foreign Direct Investment (FDI), trade openness, and remittances received on the novel misery index, a measure of macroeconomic dynamics, while considering heterogeneity in misery levels. It analyzed data from 1995 to 2022 across six economically uncomfortable East African Community (EAC) countries. Given the non-normal distribution of the data, a panel quantile regression model was employed to address both distributional and unobserved individual heterogeneity. The empirical findings indicated the weak negative effects of FDI in the lower misery index countries and stronger negative effects in the upper misery index countries. Trade openness shows stronger negative and statistically significant effects in lower misery countries, while its effects are negative but not significant in higher misery countries. Additionally, remittance inflows have a more pronounced positive impact in lower misery countries but show lesser positive effects in countries with higher misery levels. The results are robust even after accounting for additional controls, exclusion of regressors, outliers, and endogeneity issues, suggesting that foreign funds can enhance economic stability for those in misery. The study recommends promoting clean FDI in lower-meminous countries, beneficial trade agreements, and encouraging diaspora communities to advocate for productive remittances.