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

Abstract

The roled performed by FDI has been appreciated by many governments and they are coming up with means of attracting it. Foreign direct investment inflows movements into a country are said to have a positive and significant influence on economic progress of a country. Countries have to find new methods of attracting FDI stock because investors have different motivations all over. However, it is possible that FDI inflows influences overall growth but not necessary the growth of different sectors and therefore the need to investigate the relationship between FDI inflows and sectoral growth. This research attempted to find out the effect that FDI inflows have on manufacturing sector growth in Kenya. The independent variables were direct foreign investments, the rates of interest, public debt and balance of payments. Growth of the manufacturing sector was the response variable that this study aimed on explaining. The researcher gathered quarterly data of 10 years (January 2010 to December 2019). An explanatory research design was adopted whereas in analyzing their relationship amongst the variable multiple linear regression model was applied. Statistical packages version 23 was used to analyze the data. The findings of the study generated an R-square value of 0.595 that implies that 59.5 percent of that variation in the Kenyan manufacturing sector growth could be attributed to the independent variables selected in the study whereas 40.5 percent was attributed to factors not incorporated in the current study. The study showed that the independent variables had a strong association with growth of the manufacturing industry as shown by (R=0.771). ANOVA outcomes exhibited that the F statistic was significant at 5% level with a p=0.000. This implies that the model was appropriate in explaining the growth of the manufacturing industry. Further, the results showed that only public debt was a significant determinant of growth in the manufacturing sector. Although FDI inflows has a positive influence on growth of the manufacturing sector, the influence was not statistically significant. Interest rate and balance of payment exhibited negative but not statistically significant influence on growth of the manufacturing sector. The study recommends that measures are needed to control the prevailing levels of public debt as they significantly influence growth of the manufacturing sector.