Effect of Kenya’s Bilateral Relations with China on Economic Growth of Kenya (2000-2015)

Abstract

The importance of bilateral relations to any country is to offer the country the chance to access resources that are not locally available. The bilateral relations between China and Kenya have been developing and evolving since Kenya‟s independence. This study sought to examine the effect of Kenya‟s bilateral relations with China on economic growth of Kenya. The objectives of the study were to assess the effect of China‟s Loans, FDI and AID on Kenya‟s economic growth. The study was based on, Debt Overhang, Ownership Location and Internalization, Two Gap, Harrod Domer, Solow Swan Growth theories and Endogenous growth model. The study adopted a descriptive research design using time series data from year 2000 to 2015 sourced from Central Bank of Kenya, The Kenya National Treasury and Ministry of Commerce in China. The assumptions of linear regression, such as linearity, collinearity and homoscedasticity were tested. A Multiple Regression Model was adopted in analyzing the data. The results were presented in tables and charts. The findings of the effect of Loans from China had a statistically insignificant effect on the economic growth in Kenya, while FDI from China had statistical significant effect on the economic growth of Kenya and finally Aid from China is most statistically significant effect on Kenya‟s economic growth. The study concluded that bilateral relations have an effect on economic growth of Kenya. Much of the effect is attributed to AID and FDI, Loans do not bring much effect. The study recommends that Kenya needs to develop a comprehensive policy to govern its aid relations with China in order to safe guard from negative political influence positions in the future. Kenya needs to reduce the amount of money it‟s receiving from China as debt and encourage foreign direct investment and aid from China.