Impact Of Capital Flight On Private Investment In Kenya

Abstract

Private investment is the engine of growth in an economy. It is a major source of employment besides positively contributing to national output. Conversely, when capital flight occurs, domestic private savings and resource mobilization is undermined and thus brings about a decline in private investment. This study examines the impact of capital flight on private investment in Kenya. The study offers a summary of why private investment in Kenya is undermined by capital flight due to the resource gap which it creates. Further, it develops an equation to estimate investment which is derived from the flexible accelerator theory of investment. To examine the relationship between capital flight and private investment, time series data from 1970 to 2012 is employed and OLS regression analysis is used. The study found that capital flight has an adverse effect on private investment. Econometric results of this study support the existence of a negative relationship between capital flight and private investments. The study shows that real interest rate, ratio of private credit to GDP, change in terms of trade and external debt also affects private investment.