DETERMINANTS OF FOREIGN DIRECT INVESTMENT INFLOWS IN KENYA
Abstract
The objective of this study was to establish the determinants of FDI inflows in Kenya with these supporting variables: inflation, balance of payment, trade openness and interest rate. The study adopted a descriptive research design which is concerned with the what, where and how of a phenomenon hence more placed to build a profile on that phenomenon. The study used secondary data collected from various sources including Kenya National Bureau of Statistics data and the Central Bank of Kenya. The study period was 2012-2017 financial period. The study used annual data because growth of FDI inflows was determined annually. In order to determine the effect of FDI inflows in Kenya, the researcher conducted a multiple regression analysis. The study concluded that there exist a negative correlation between high inflation rate and FDI inflows in Kenya, inflation acts as a proxy of macroeconomic volatility and does not determine flows of FDI in Kenya in the long run and inflation rate is equally an important variable in the operation of an economy and in determination of a country’s balance of payments. The study concluded that balance of payment has positive significant effect on FDI inflows in Kenya; a decrease in foreign reserve attracts more FDI into Kenya. Openness positively affected the level of investment and the rate of economic growth, trade-policy induced openness to have negatively and significantly affected investment and the rate of economic growth. High Exchange rates have negative consequences on FDI inflows in Kenya; Exchange rate volatility was shown as contributing to uncertainty which can affect FDI growth negatively. The study recommended the Government of Kenya should ensure that the exchange rate is stable by putting in place necessary interventions to enhance investors’ confidence. The policy makers should be aware that stimulating trade openness for an economy like Kenya can help develop a liberal market.
Key Words: Inflation, Balance of Payment, Trade Openness, Interest Rate
CITATION Ndaire, N. W., & Wepukhulu, J. M. (2019). Determinants of foreign direct investment inflows in Kenya. The Strategic Journal of Business & Change Management, 6 (4), 851 – 868
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DOI: http://dx.doi.org/10.61426/sjbcm.v6i4.1433
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