The Effect of Foreign Direct Investment on Economic Growth in Kenya

Abstract

Foreign Direct Investments (FDI) is defined as investment made to acquire lasting or long-term interest in enterprises operating outside the economy of the investor while Economic Growth is generally defined as an increase in the production and consumption of goods and services. Among the key determinants of economic growth are most significantly, investments, then international trade, human capital, innovation, research and development and economic policies. Investments, in this case FDI, contributes to economic growth by injecting funds into an economy, spurring increased production, skills enhancement, infrastructure development and employment, all of which constitute economic growth. The study sought to determine the effect of foreign direct investments on economic growth in Kenya. A descriptive survey research design was employed for this study due to its appropriateness in enabling description of characteristics of particular groups, estimation of various proportions in these cohorts and its value in making predictions. Quantitative, secondary data obtained from the Central Bank of Kenya, Kenya National Bureau of Statistics, United Nations Conference on Trade and Development and World Bank databases were used based on the information of the variables in use over a period of 31 years (1984-2014). The data was analyzed through descriptive analysis and further through content analysis. The findings of this study may be useful to future researchers on similar studies, scholars, academicians and policy makers examining the effect of FDI on economic growth in Kenya and possible ways of enhancing economic growth in the country. It was established that FDI, interest rates, inflation rates and foreign exchange rates have a direct impact on economic growth in Kenya, concluding that FDI positively affect Kenya‟s economic growth. The study recommends implementation of feasible monetary and fiscal policies by the government and policymakers in order to attract more FDI inflows into the country and achieve greater economic growth.