The relationship between Foreign Direct Investment (FDI) and economic growth in Kenya, Uganda and Tanzania

Abstract

Many developing countries continue to put in place policies that will attract Foreign Direct Investments (FDI). Such policies are based on positive hopes that FDI enhances economic growth. This study seeks to establish whether there is any relationship between FDI and economic growth for Kenya, Uganda, and Tanzania. The study further seeks to determine if the level of financial sector development influences such relationship. Empirical analysis using data between 1991-2000 shows that FDI positively and directly influences economic growth for Tanzania. No direct relationship between FDI and economic growth were observed for Kenya and Uganda. The test for influence of financial sector development on the FDII Growth relationship produced mixed results.