Democratizing Africa, American Sanctions on Zimbabwe

Abstract

This study investigates the determinants of FDI stock in Kenya. In so doing, a regression analysis was done on annual secondary time series data of 41 years (1976-2016). Many studies have elaborated on the importance of FDI in developing countries. The importance of FDI according to these studies has not only been the provision of capital for domestic investment, but also for creating employment opportunities, helping in transferring of management skills and technology, all of which contribute to economic growth and development. However, despite efforts by requisite, government authorities in Kenya to attract FDI to the country, Kenya is still experiencing a decreasing trend of FDI (Kinuthia and Murshed, 2015). Therefore, this study examines the economic determinants of FDI in Kenya, such that the results obtained will be used to make recommendations that will help inform government economic policies. The study concludes that there is a positive and significant relationship between foreign direct investment, openness of the economy, GDP, and human capital. The study also concludes that there is a significant but negative relationship between foreign direct investment and infrastructure and a negative and insignificant relationship between FDI and exchange rate. Therefore, reducing trade barriers attracts FDI and has a decisive positive effect on economic growth and a progressive economic environment is attractive to investors. Also, pursuing policies that will raise the level of local skills and build up the human resource capacity of the country to enhance the productivity of investment and the country as a whole and adopting policies that will reduce infrastructural bottlenecks are all prudent economic endeavors. By adopting and implementing these policies, government will enhance the attractiveness of Kenya to FDI.