Effect Of Foreign Direct Investment On The Growth Of The Manufacturing Sector In Kenya

Abstract

There exists compelling evidence to prove that FDI has a notable and useful impact to spur the development of countries economically. FDI can be thought of as a medium for relaying physical assets and non-physical assets like the latest technological developments, and the best managerial skills and innovations. In theory, capital creation and advancements in technology drive economic growth, therefore, it is logically a good driver of development in receiving countries. Economists suggest that it is an essential component of development among developing nations. This exercise attempted to find out the effect that FDI had on manufacturing sector development in a country like Kenya. The independent variables were direct foreign investments, the rates of interest, the rates of inflation and exchange rates. Growth of the manufacturing sector was the response variant which the study tried to elaborate. This was estimated by contribution of manufacturing sector to GDP. The author gathered data for a decade (January 2009 to December 2018) on a quarterly timeline. The study used a cross-sectional research design and a multiple linear regression model that analyzed the relationship between the variables. Statistical packages version 21 was used to analyze the data. The results of the study produced R-square value of 0.614 which meant that 61.4 percent of the changes in growth of the manufacturing sector in Kenya could be shown by the selected independent variables while 38.6 percent in the variation was associated with other factors not covered in this research. The study showed that the independent variables had a strong relation with growth of the manufacturing industry (R=0.78.4). ANOVA findings showed that the F statistic was significant at 5% level with a p=0.000. This model was fit to show the growth of the manufacturing industry. The results also showed that only exchange rates were significant determinants of growth of the industry. The study suggested that measures were needed to improve and develop the manufacturing industry by controlling the prevailing levels of exchange rates.