Relationship Between Exchange Rate Volatility and Foreign Direct Investment in Kenya

Abstract

The purpose of the study was to assess the relationship between exchange rate volatility and foreign direct investment in Kenya between the year 2013 to 2017. Kenya, like other developing countries, can on count foreign direct investment as one of the crucial factors in determining its economic growth. Foreign direct investment is essential to a developing economy if it can effectively absorb its spill-over effects. The study results indicated that average total foreign direct investment remittances from different sectors of economy remained steadily between 2013 and 2015 with a slight decrease between 2014 and 2015 followed by a sharp increase between 2014 and 2016. The per-capita income increased significantly between 2013 and 2014 with a stead movement between 2014 and 2016 while exchange rate measured by Kenya shilling compared to Dollar fluctuates upward between 2013 and 2017 with the highest point been in 2015 and lowest rate recorded in 2013. The findings show that inflation rate recorded an increase between 2013 and 2015 with a slight drop in 2014. The findings also found that there exists a strong relationship between exchange rate and total foreign direct investment remittances; total foreign direct investment remittances were found to be strongly affected by the inflation rate increase.