Effect of Stock Market Development on Foreign Direct Investment Inflows in Kenya
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Date
2023Author
Kihara, Ephantus N
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
The capital markets in Kenya play a crucial role in economic growth and especially
towards achievement of Vision 2030. However, the stock market development
measure, private credit to GDP (%), for Kenya has been below the low and mediumincome
countries average for the period between 1964 and 2022. At the same time,
Kenya has seen multinational corporations with well-developed countries leaving
operations in unpredictable situations and this has adversely affected FDI inflows into
the region. The primary objective of this study is to assess the influence of stock market
development on FDI inflows in Kenya over a ten-year period, from 2013 to 2022.
Additionally, the study aims to examine the correlations between FDI and other control
variables, including interest rate, inflation rate, and economic growth. This study was
anchored on internalization theory and supported by monopolistic advantage theory and
eclectic paradigm framework. This research utilizes quantitative analysis, including
correlation analysis and regression modeling, to assess the relationships among the
variables. The study employs quarterly data for a ten-year period to provide a
comprehensive overview of the dynamics in Kenya's FDI landscape. The study reveals
a significant positive correlation between stock market development and FDI inflows
in Kenya, suggesting that a well-developed stock market can attract foreign investors.
Furthermore, economic growth emerged as another significant predictor of FDI,
emphasizing the importance of fostering a robust and growing economy to attract
foreign investment. However, interest rates and inflation rates did not exhibit significant
correlations with FDI inflows during the study period. The study concludes that stock
market development and economic growth are crucial drivers of FDI inflows in Kenya.
Policymakers are urged to prioritize initiatives that promote stock market development,
sustainable economic growth, and an investment-friendly climate to enhance Kenya's
appeal as an investment destination. To attract and retain foreign direct investment
effectively, Kenyan authorities should focus on fostering stock market development,
promoting sustainable economic growth, enhancing the overall investment climate, and
diversifying investment promotion efforts. Future research could expand the temporal
scope, incorporate qualitative analysis, delve into sector-specific FDI dynamics,
consider the global context, and evaluate policy effectiveness to provide a more
comprehensive understanding of FDI in Kenya and guide policymakers and investors
effectively
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
- School of Business [1411]
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