The impact of Foreign Direct Investment (FDI) on economic growth in Kenya

Abstract

This paper examines the effects of FDI flows on Kenyan economic growth over the period 1985- 2011. The analysis applies ordinary least square (OLS) regressions technique with net FDI inflows as the main variables of interest. The study finds that FDI impacts positively on Kenyan economic growth although insignificantly with suggested thresholds in literature: trade openness and human capital stock reducing its potential benefit to economic growth in Kenya. Based on these findings, the study suggests that Kenya should embark on policies that promote sound macroeconomic policies to: increase and diversify exports; to provide avenues of utilising the idle or unproductive labour and; to reduce the cost of capital. In addition, the study recommends further research on: whether the source of FDI matters and; the effects of incentives offered so as to capture all the dynamics associated with FDI and economic growth in Kenya