Impact of Selected Macro Economic Variables on Foreign Direct Investment in Kenya
International Journal of Economics, Finance and Management Sciences
Volume 4, Issue 3, June 2016, Pages: 107-116
Received: Apr. 6, 2016;
Accepted: Apr. 16, 2016;
Published: Apr. 28, 2016
Views 11295 Downloads 388
Margaret Naliaka Kwoba, Department of Entrepreneurship, Technology, Leadership and Management, Jomo Kenyatta University of Agriculture and Technology, Nakuru, Kenya
Patrick Kibati, Department of Entrepreneurship, Technology, Leadership and Management, Jomo Kenyatta University of Agriculture and Technology, Nakuru, Kenya
Foreign direct investment is one of the major sources of external finance for developing countries like Kenya that have a limited amount of capital. Foreign flows into the country so far have been increasing as compared to the previous year’s revealing Kenya potential as a business hub for multinational companies to invest in. However, the inability to retain FDI flows into the country has become a major problem and understanding the factors driving FDI inflows into a country and their impact on a country’s economic development is of importance. The main objective was to find out the impact of exchange rate, GDP and inflation on FDI in Kenya. Foreign direct investment as a percentage of GDP was the dependent variable while the independent variables were exchange rate, GDP and Inflation rate. The study examined data for 10 years from 2005-2014 for Kenya. To find out the perception of people towards FDI in Kenya primary data was collected from a sample of 271 people. A linear regression analysis was used to determine the relationship between exchange rate, GDP, inflation rate and FDI inflows. Exchange rate, GDP and Inflation rate were found to have a negative insignificant effect on FDI inflows. The study also found out that people in Kenya perceive FDIs as market seeking investments that is they will invest if there is availability of market for the goods and services produced. The study recommends that Policies in relation to formation of regional treaties between Kenya and neighboring countries with an aim of encouraging foreign investment should be made. Security should also be maintained within and around the country and political stability is also crucial in attracting and retaining FDIs. In addition the government should increase its fight against corruption in Kenya so as to increase the foreign investor’s confidence in investing in our country.
Margaret Naliaka Kwoba,
Impact of Selected Macro Economic Variables on Foreign Direct Investment in Kenya, International Journal of Economics, Finance and Management Sciences.
Vol. 4, No. 3,
2016, pp. 107-116.
Abala, D. (2014), Foreign Direct Investment and Economic Growth: An Empirical Analysis Of Kenyan Data, DBA Africa Management Review, Vol 4 No 1. Pp. 62-83.
Adina D., Dumitru C., Carol I B. (2012). The Impact of the Recent Global Crisis on Foreign Direct Investment. Evidence from Central and Eastern European Countries. Journal of economics and finance 3 (2012) 1012 – 1017.
Arbatli, E. (2011). Economic policies and FDI inflows to emerging market economies, IMF Working Paper.
Ade O. A. Babatunde H. & Awoniyi M. A (2011).Corruption, Foreign Direct Investment and Growth in Nigeria, ‖Journal of Research in International Business Mangement, Vol 1, No9.
Andinuur, J. (2013). Inflation, Foreign Direct Investment and Economic Growth in Ghana, The University of Ghana.
Aremu, J. A. (2005). Foreign Direct Investment and Performance. Paper Delivered At A Workshop On Foreign Investment Policy And Practice Organized By The Nigerian.
Chakraborty, C., and P. Basu (2002). Foreign Direct Investment and Growth in India: A Cointegration Approach. Applied Economics 34: 1061-1073.
Chingarande, A., Karambakuwa, T. Et al (2011). The Impact of Interest Rates on Foreign Direct Investment: A Case Study Of The Zimbabwean Economy (February 2009-June 2011), International Journal of Management Sciences and Business Research, 2012, Vol. 1, No. 5. (ISSN: 2226-8235)
Bouoiyour, J. & Serge Rey (2005), Exchange Rate Regime, Real Exchange Rate, Trade Flows and Foreign Direct Investments: The Case of Morocco. African Development Bank.
Djokoto, G. (2012). The effect of Investment Promotion on Foreign Direct Investment Inflow into Ghana‖. International Business Research, Vol5, No3.
Lipsey, R E (2001) Foreign Direct Investment and the Operations of Multinational Firms: Concepts, History, and Data, Working Paper 8665, National Bureau of Economic Research, Cambridge, Massachusetts, December.
Mahiti, F (2012). Determinants of Foreign Direct Investments (FDIs) In East Africa Countries Of Tanzania And Kenya. (Unpublished MBA Paper). Mzumbe University.
Article on United Nations Conference on Trade and Development (UNCTAD), World Investment Report 1998: Trends and Determinants (New York and Geneva: United Nations).
Mugenda, O & Mugenda, A (2003). Research methods; Quantitative & qualitative approaches. Nairobi; Acts press.
Muthoga, S. K. (2003). The Determinants of Foreign Direct Investment in Kenya (1970- 1999). Published research project, Kenyatta University.
Nabutola, W. (2009). “Urban-Rural Relationship in Land Management and Access to Land- Kenyan Experiences”, paper prepared for the 2nd FIG Regional conference, Marrakech.
Kiptui, M. (2007). Does the Exchange Rate Matter for Kenya’s Exports? A bounds testing approach. Prepared for presentation at the African Econometric Society 2007 conference, Cape Town, July 4th to 6th 2007.
Kinuthia. (2010). Determinants of Foreign Direct Investment in Kenya: Evidence Annual, African International Business and Management. Leiden: African studies Centre.
Njeru, B. (2013). The Impact of Foreign Direct Investment on Economic Growth in Kenya. Published research project, Nairobi University.
Omankhanlen, A. E. (2011). The Effect Of Exchange Rate And Inflation on Foreign Direct Investment and Its Relationship With Economic Growth In Nigeria, University Of Galati, Journal of economics and applied informatics, years xvii – no1/2011 issn 1584
OECD (2008), Benchmark Definition of Foreign Direct Investment Fourth Edition 2008, OECD publishing. Available at,www.sourceoecd.org/finance/9789264045736
Oude M. K. (2013). The Effect of Exchange Rate Fluctuations on Gross Domestic Product in Kenya. Research Project, University Of Nairobi
Singhania, Monica, & Akshay G. (2011). Determinants of Foreign Direct Investment in India. Journal of International Trade Law and Policy 10, no. 1 (2011): 64-82.
Society for international Development (2013). The State of East Africa International Report, Nairobi.
The World Bank Group (2016), Foreign Direct Investment Data Inflows.
The World Bank (2012). Kenya Economic Update, Produced By Poverty Reduction and Economic Management Unit Africa Region.
Udoh, E. & Egwaikhide F. O, (2008). Exchange Rate Volatility, Inflation Uncertainty and Foreign Direct Investment In Nigeria. Botswana, Journal of Economics. 5(7): 14-31.
Udomkerdmongkol M., Gorg H. & Oliver Morrissey (2006). Foreign Direct Investment and Exchange Rates: A Case Study of US FDI in Emerging Market Countries. University Of Nottingham.
Unctad (2015). World Investment Report, Transnational Corporations, Extractive Industries and Development. http://unctad.org/en/PublicationsLibrary/wir2015_en.pdf
United Nations Conference on Trade and Development (2003). Foreign Direct Investment and Performance Requirements: New Evidence from Selected Countries, Division on Investment, Technology and Enterprise Development Retrieved from Http://Www.Unctad.Org
Yarbrough, B. V. & Yarbrough, R. M. (2002). The World Economy: Trade and Finance, South- Western College Publishers.