MACROECONOMIC VARIABLES AND FOREIGN DIRECT INVESTMENT IN KENYA
MACROECONOMIC VARIABLES AND FOREIGN DIRECT INVESTMENT IN KENYA
Gloria Valerie Mukabane - Master of Business Administration Student, Department of Accounting and Finance School of Business, Economics and Tourism, Kenyatta University, Kenya
Dr. Moses Odhiambo Aluoch (PhD) - Lecturer, Department of Accounting and Finance, School of Business, Economics and Tourism, Kenyatta University, Kenya
ABSTRACT
Foreign direct investment has emerged as a noteworthy source of capital flow that links the economies of several emerging nations, including Kenya. As a result, it has become a crucial driver of economic progress in these nations. Over time, foreign direct investments in Kenya have changed, notwithstanding their importance to economic progress. When foreign investors decide to invest or infuse capital into various enterprises, macroeconomic considerations play a significant role. Determining whether Kenya's macroeconomic conditions impact Foreign Direct Investment is therefore crucial. The primary objective of the present investigation is to explore the effects of macroeconomic factors on foreign direct investment in Kenya. The research analysed how inflation, the interest rate, the foreign exchange rate, taxation policy, and the rate of gross domestic product growth affect the inflow of foreign direct investment into Kenya. The study is based on the eclectic paradigm, the purchasing power parity theory, the macroeconomic stability theory and neoclassical growth theory. The research was based on a quantitative correlational type of study design, whereby secondary quarterly time-series data collected by the Central Bank of Kenya and the Kenya National Bureau of statistics were used. The study period is the year 1990 to 2024. Sample techniques, investigation approach, data collection strategies, and analysis methods were presented. The information collected was thereafter subjected to different diagnostic tests (heteroscedasticity, multicollinearity, stationarity, serial correlation, and normality tests), which are relevant for panel data regression to ensure the validity of the results to be obtained. The data was analyzed based on inferential as well as descriptive statistics and multiple regression modeling. All ethical considerations were duly followed. Findings disclosed that the interest rate negatively and significantly affected foreign direct investment. Inflation rate positively and significantly determines foreign direct investment. Exchange rate influence is said to have affected foreign direct investments positively. Taxation policy provided a significantly positive effect on foreign direct investment. GDP growth rate has a significantly positive effect on foreign direct investment in Kenya. The study recommends that the Central Bank of Kenya ought to pursue a policy of keeping interest rates at rates that do not promote macroeconomic instability, but rates that are not so high as to cause a rise in the cost of borrowing funds that could push away any foreign investors. This was to make Kenya an attractive place to investors because it was easier to earn money in the stable and predictable interest rate environment, fostering a steady flow of capital in the form of investments towards economic growth and development. Such should be accompanied by sensible coordination of fiscal and exchange rate policy so as to achieve a generally supportive climate within which investment takes place.
