Effect of Economic Growth on Foreign Direct Investment in Kenya

Abstract

The growing competition for FDI is certain to have an impact on the course of economic development of economies and encourage the pursuit of continued reforms to improve the investment climate and attract greater foreign investment. Many countries especially among developing countries are in need of FDI. In order to attract FDI in their economies, countries have ensured there exist appropriate structural development record to assure the foreign investors of business success. The objective of this study was to establish the effect of economic growth on foreign direct investment in Kenya. This study adopted a descriptive research design which generally describes the characteristics of a particular situation, event or case. The study used secondary data. The population of this included all sectors of the Kenyan economy, for data relating to economic growth and foreign direct investment (FDI) inflows. The two main variables of this study are economic growth and FDI. The study conducted a multiple regression analysis and used analysis of variance (ANOVA) in the analysis of experimental data to test the variables for statistical significance. The study established that a relationship exists between economic growth and foreign direct investments. A positive relationship exists between the GDP growth, exchange rates with the foreign direct investments. Therefore, increments of these macroeconomic variables boost foreign direct investments in the country. The study recommended that policymakers should formulate policies and strategies that are geared towards achieving better economic growth in Kenya. Small and emerging sectors such as jua kali and other small and medium enterprises should be accorded the necessary support since they employ a majority of the Kenyan population thus making important contributions towards GDP growth. The government ought to readily support informal sectors since these sectors are key to economic growth that has an impact on foreign direct investment. The study recommends that the Kenyan legal system should be strengthened in order to protect investors thus creating a conducive environment for foreign investments. The interference by government agencies in judicial operations undermines fair rulings thus causing multinational investors to go to countries with high judicial credibility.