Impact of Selected Macro Economic Variables on Foreign Direct Investment in Kenya

Abstract

Foreign direct investment is one of the major sources of external finance for developing countries like Kenya that have a limited amount of capital. Foreign flows into the country so far have been increasing as compared to the previous year's revealing Kenya potential as a business hub for multinational companies to invest in. However, the inability to retain FDI flows into the country has become a major problem and understanding the factors driving FDI inflows into a country and their impact on a country's economic development is of importance. The main objective was to find out the impact of exchange rate, GDP and inflation on FDI in Kenya. Foreign direct investment as a percentage of GDP was the dependent variable while the independent variables were exchange rate, GDP and Inflation rate. The study examined data for 10 years from 2005-2014 for Kenya. To find out the perception of people towards FDI in Kenya primary data was collected from a sample of 271 people. A linear regression analysis was used to determine the relationship between exchange rate, GDP, inflation rate and FDI inflows. Exchange rate, GDP and Inflation rate were found to have a negative insignificant effect on FDI inflows. The study also found out that people in Kenya perceive FDIs as market seeking investments that is they will invest if there is availability of market for the goods and services produced. The study recommends that Policies in relation to formation of regional treaties between Kenya and neighboring countries with an aim of encouraging foreign investment should be made. Security should also be maintained within and around the country and political stability is also crucial in attracting and retaining FDIs. In addition the government should increase its fight against corruption in Kenya so as to increase the foreign investor's confidence in investing in our country.

The Effect of Fiscal Policy and Foreign Direct Investment on Regional Economy in Indonesia

“…Foreign investment is considered to be something that can fill the gap between savings raised from within the country, foreign exchange reserves, government revenue, and expertise on the one hand and the amount needed to achieve development goals on the other hand (Todaro, 2000). Chaudhry et al (2013) and Abala (2014) have carried out a study on the relationship between foreign investment and economic growth, indicating that foreign investment could have a positive relationship with economic growth.…”

“…The participation of local governments and communities using these resources has begun to inventory the potential of existing resources to support and develop the regional economy. Chaudhry, Mehmood, and Mehmood (2013); Abala (2014) support investment as one of the drivers of economic growth needed by traditional neoclassical opinions in economic development. According to this analysis, foreign investment is something that can save existing savings.…”