| dc.description.abstract | Foreign direct investment has been argued to play a key role in accelerating growth in
developing countries. Over the past two decades, world saving as a proportion of
world income has fallen. As a result saving, real interest rate has declined and
inflation rate has risen in the world. It is against this background FDI has appeared
increasingly attractive to developing countries facing declining domestic investment
and higher costs of foreign borrowing. The government of Kenya therefore has been
putting up incentives to ensure that foreign companies are attracted to the country in
an attempt to increase the investments to the country and improve the level of
economic growth in the country. The objective of this study was to determine the
relationship between foreign direct investment and balance of payments in Kenya.The
study used a correlation design. The study collected secondary data from the World
bank database, Central Bank of Kenya, and the Kenya National Bureau of Statistics
for a 20 year period from 1993 to 2012. The data was analysed using descriptive
analysis as well as OLS regression analysis after testing for non-stationarity of data
using Augmented Dickey-Fuller test. Three equations were modeled for this study and
used in the regression. The study found that the relative price of imports had a
positive and significant impact on imports at the 1% level of significance while GDP
and FDI were not significant in the model. This model accounted for 59.6% of the
variance in imports and it was jointly fit in explaining the variance in imports. The
study found that the relative price of exports and GDP had positive and significant
impacts on exports at the 5% level of significance while FDI and lagged FDI did not
have a significant impact on exports at all acceptable levels of significance. The
model accounted for 52.6% of the variance in exports and was jointly fit in explaining
the variance in exports. The results showed that FDI and Dummy2008 did not have a
significant impact on CABECT at all acceptable levels of significance. The model
accounted for only 18.4% of the variance in CABECT and it was not fit to jointly
explain the impact on CABECT. The study concludes that the relative price of
imports affects imports and that the relative price of exports and GDP also impact on
exports. The study also concludes that FDI does not impact on exports, imports, or
CABECT. There is therefore no evidence of FDI having a significant impact on
balance of payments in Kenya. The study recommends that since FDI inflows have
not been large enough to have a significant influence on balance of payments, it is
important to policies be instituted to attract more FDI inflows in Kenya in order to
gain from the advantages that come with FDI inflows. | en |
