Effects of Macroeconomic Factors on Foreign Direct Investment in Kenya

James Karau ,Peter M Ng'ang'a

doi:10.7176/ejbm/11-3-06

Abstract

This study examined the effects of macroeconomic factors on foreign direct investment in Kenya (FDI). The study used four macroeconomic variables namely foreign exchange rates, tax rates, inflation rates, interest rates and balance of payment for the period 1970 to 2010. The study used a multiple linear regression analysis with the FDI inflows as the dependent variable and the macroeconomic factors as the independent variables. The study found a positive relationship between FDI and interest rates as well as balance of payments while inflation and tax rate had negative relationship with FDI. The study recommended that the government should promote a stable macroeconomic environment in the country to enhance FDI. Keywords: Interest rate, Inflation rate, Exchange rate, Tax rate, Balance of Payments, Foreign Direct Investment. DOI : 10.7176/EJBM/11-3-06

Highlights

Empirical studies have shown that Foreign Direct Investment (FDI) has had a positive effect on growth in the world economies especially so in Sub-Saharan Africa
From the results in the table 4.1, it was established that the total FDI inflows into the country was United States dollar (USD)
The study findings showed that 71.1% changes in FDI could be accounted for by changes in exchange rates, tax rates, inflation rates, Interest rates as well as balance of payment

Summary

Introduction

Empirical studies have shown that Foreign Direct Investment (FDI) has had a positive effect on growth in the world economies especially so in Sub-Saharan Africa. Most countries have been facing a common challenge on how to ensure investment policies are grounded in the overall development strategy and that the policies are coherent and synergetic at both national and International levels to attract considerable FDI (Kinyanjui and Kinuthia, 2010). Like many other developing and emerging nations, has had a big challenge in attracting and sustaining foreign direct investment at levels that allow domestic investment to take advantage of benefits associated with capital inflows. Over a period of time the Kenyan government had initiated and employed policy incentives in order to encourage FDI inflows into the country. Despite these measures, FDI inflows into the country had continued to be characterized by fluctuations

Objectives

Methods

Results

Conclusion