Legal Environment,Finance Channels and Investment: The East African Example

How do legal environments and finance affect investments by firms in the East African community? Property rights, external and internal finance channels – key conduits of the transmission mechanism from ‘legal environment’ to ‘investment’– individually and interactively affect firms' decision to invest. Firms that perceive secure property rights are more likely to invest in fixed capital. The interactions suggest governments in this community would do well to pursue investment/growth policies that slant heavily towards financial markets deepening while not ignoring enhancement of legal infrastructures. Overall, property rights, external finance, internal finance, firm size, and an export-orientation, are important determinants of the investment decision.