The Relationship Between International Financial Flows and Economic Growth in East Africa

The relationship between International Financial Flows—particularly foreign aid (Official Development Assistance, ODA) and Foreign Direct Investment (FDI)—and economic growth has remained a subject of persistent debate among scholars, policymakers, and development practitioners. While some studies argue that international capital inflows stimulate economic growth by bridging savings gaps, enhancing investment capacity, and promoting technology transfer, others contend that such flows may create dependency, inefficiencies, and macroeconomic instability. This divergence in empirical findings has complicated development policy formulation across African economies, where external financing remains a significant component of growth strategies. The inconsistent outcomes reported in literature further suggest that the effectiveness of international financial flows is highly context-dependent, influenced by institutional quality, governance structures, and absorptive capacity of recipient economies. In the African context, reliance on external capital has raised concerns about sustainability and economic sovereignty, particularly when inflows are volatile or poorly aligned with domestic development priorities. However, a growing body of literature emphasizes a more balanced and collaborative approach, where a strategic mix of ODA and FDI can potentially enhance economic performance and long-term development prospects. This study highlights the importance of understanding the dual and sometimes conflicting effects of international financial flows on economic growth, while recognizing the need for policy frameworks that optimize their benefits. It argues that African countries may improve growth outcomes by strengthening domestic institutions and effectively coordinating external financial resources to support productive investment and structural transformation