Effect of Trade Openness on Foreign Direct Investments in Kenya
Abstract
Kenya launched its 2030 vision in 2008 with the goal, among other things, of attaining
global competition for FDI and economic growth. Inconsistent FDI inflows have
occurred in Kenya since the 1970-1980s. In response to structural shifts and industry
trends, Net FDI was extremely unpredictable and generally diminishing in the 1980s
and 1990s. The objective of this research was to determine the effect of trade openness
on Kenya’s FDI inflows. The study was based on internalization theory, monopolistic
advantage theory and new economic geography theory. The independent variable was
trade openness while the control variables were; interest rate, inflation and economic
growth. The dependent variable that the research attempted to explain was the FDI
inflows in Kenya. The data was obtained on a quarterly basis for a duration exceeding
twenty years (from January 2002 to December 2021). A descriptive research approach
being utilized in the research, with a multivariate regression model utilized in
examining the link between the research variables. The research conclusion depicted a
0.271 R-square value, signifying that the selected independent variables can describe
27.1 percent of the variance in Kenya’s FDI inflows, whereas the other 72.9 percent
was attributable to other factors not surveyed in this research. The F statistic was
significant at a 5% level with a p=0.000. This proposes that the model was satisfactory
for explanation FDI inflows in Kenya. Further, the results demonstrated that trade
openness had a positive and significant influence on Kenya’s FDI inflows. Interest rate
and inflation had no significant influence on Kenya’s FDI inflows. Economic growth
had a significant positive influence on FDI inflows in Kenya. The study recommends
the need for practitioners and policy makers to ensure that the level of trade openness
keeps on improving as this will enhance FDI inflows into the country. Policy makers
should also aim at developing policies aimed at ensuring sustainable economic growth
as this is an important determiner of FDI inflows. Future studies can focus on other
determinants of FDI in Kenya such as corruption, financial development among others.
Future studies can also focus on other countries in the East Africa Community to
confirm the findings.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
- School of Business [1515]
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