Determinants of Foreign Direct Investment Flows into Kenya

Abstract

Kenya like many countries around the world has continued to put great effort in attracting Foreign Direct Investments (FDI). In the recent past the country has hosted a number of international delegations and conferences with the sole aim of attracting foreign direct investments. In the early 1970s and 1980s, Kenya was the preferred destination for Foreign Direct Investment in Eastern Africa. However in the last two and a half decades Kenya has seen its preference dwindling compared to its immediate neighbours; Tanzania, Ethiopia and Uganda. This study aimed at investigating the factors that determine FDI flows into Kenya. The study specifically looked at factors such as economic growth proxied by annual percentage change in real Gross Domestic Product, inflation, proxied by consumer price index, government expenditure, proxied by total government consumption expenditure to GDP, and human capital, proxied by secondary school enrolment rate.  The study used purposive sampling method to choose a sample of 26 years from 1970 to 2015. The study used the multiple regression technique to establish the causal relationship between FDI and its determinants using the Statistical Package for the Social Sciences (SPSS) Version 22.0 and Gretl.

The result of the study established that Government Expenditure, Human Capital, Economic Growth and Inflation have positive and significant effect on Foreign Direct Investment flows into Kenya. It is therefore recommended that the government puts in place policies that will attract FDI. These may include investment in infrastructure, improvement of human capital, increase in economic growth and controlled inflation would go a long way in attracting FDI.