The Effect of Foreign Direct Investments on Economic Growth in Kenya

Abstract

This study attempts investigates the effect of Foreign Direct Investments (FDI) on economic growth in Kenya. International Monetary Fund (1977) defines FDI as investment that is made to acquire a lasting interest in an enterprise operating in an economy other than that of the investor, the investor's purpose being to have an effective voice in the management of the enterprise. The study used descriptive research design which is used when the problem has been specifically defined and where the researcher has certain issue to be described by the respondents about the problem. Secondary data was collected for the period between1981 and 2010. Secondary data of FDI was collected from central bank of Kenya Databases, the world periodical and economic survey reports and websites, the Treasury periodical financial reports and periodicals, National Bureau of Statistics-the periodical economic survey and outlook reports and International Monetary Fund (IMF) periodical and economic survey reports and websites while economic growth data was captured from the Central Bank of Kenya quarterly for the last 10 years, 2003- 2013. Microsoft excels package was used to analyze the data to obtain the descriptive statistics (mean and standard deviation) and correlation and multiple linear regression model fitted to explain the relationship between variables. Findings were presented in tables and graphs. The Pearson correlation was computed for Gross Domestic Product (GDP), FDI, Inflation Rate and Foreign Debt resulting in a weak negative relationship. These findings have led to the conclusion that there is a small impact brought about by FDI to Kenyan economic growth. The Kenyan government should embrace policies that aim to attract more FDI while micromanaging the same to avoid the negative impact of FDI on local firms such as crowding out