An Empirical Study Of Location Determinants Of Foreign Direct Investment: In Kenya

Abstract

In transition and developing economies. Foreign Direct Investment (FDI) is a prime concern for policy makers economists and politicians alike. In the recent past, Kenya has found it difficult attracting FDI. The issue of the determinants of FDI arises. Understanding the determining factors of FDI inflows, and unveiling the reason why some countries are most successful than Kenya in attracting FDI, provide policy makers with useful guidance for future policy prescription. In this study FDI is modeled by focusing on macro-economic determinants of FDI, which encompasses variables, which the government has direct control of as opposed to the micro-economic variables. The study approaches the issue at the country level consequently only broad trends about macro-economic determinants of gross FDI flows can be discerned. We started with one dependent variable (FDI) and thirty one (31) independent variables ranging from gross private investment to domestic investment to GDP ratio. The first step was to establish the time series properties of data, i.e. establish the existence or lack of, unit root. We report that, FDI, direct taxes on corporate profits, GDP in constant market prices, gross fixed capital information, exchange rate, openness of the economy and domestic investment to GDP ratio were non-stationary in levels, but stationery in first differences, that is, they are integrated of order 1(1). The final results show that FDI have long-term relationship with these variables. This suggests that economist should focus on these variables when managing FDI inflows