Determinants of Private Investment in the Manufacturing Firms in Kenya

Abstract

This research paper explores the determinants of private investments in the manufacturing firms in Kenya, addressing critical questions. What factors influence investment decisions of manufacturing firms in Kenya? What are the implications of these findings for policy makers? The primary objectives of the study was to examine the determinants of private investment in manufacturing firms in Kenya. The research employed a flexible accelerator model and utilized the Tobit model with maximum likelihood estimator (MLE). The research utilized information from the 2018 Enterprise Survey data gathered by the World Bank. The Enterprise Surveys proved to be beneficial as it utilized standard survey tools for gathering firm-level data. The study focused on data from 2018 and utilized cross-sectional data. The results come together to highlight the substantial negative effects of foreign ownership, which has been shown to have a significant detrimental impact on both investment rates and the likelihood of investment, raising concerns about potential limitations on control or profit. Formal managerial training is seen as a beneficial factor that boosts investment levels and likelihood of investment. This underlines the vital importance for companies to invest strategically in skill development programs in the manufacturing industry in Kenya in order to achieve high performance. On the other hand, corruption and tax barriers are negatively impacting private investments. The outcome indicated that unfavourable business conditions will lower the likelihood of a firm's investment choices. The results provide important suggestions for policymakers and investors, pointing out that enhancing taxation systems, providing training for workers, and addressing corruption issues could make the Kenyan manufacturing sector more appealing for private investment. In general, this research paper offers a detailed insight into the investment environment in Kenya and presents practical suggestions to foster the expansion of the manufacturing sector.