Macro-Economic Variables and Foreign Direct Investment Growth Rate in Kenya.
Developing nations consider foreign direct investment (FDI) as a necessity for external finances and consistent economic growth. Kenya being a developing country benefits from foreign direct investment inflows through enhanced economic growth, increased employment opportunities, increased utilization of local resources, infrastructural growth and development, technological transfer, and improved balance of payment among other benefits. However, the fluctuations and inconsistencies in FDI growth rate in Kenya and inability to consistently retain the inflows and growth trend over the years has become a concern to the country’s FDI growth projection. Macro-economic variables are known to impact the level of foreign direct inflows into a country depending on the prevalent conditions hence, the need to study, analyze and identify how FDI inflows in Kenya is influenced by the macro-economic factors as many studies carried out in other countries have linked these FDI fluctuations to various macro-economic factors. More explicitly, this subject aimed at evaluating the effects of; inflation rates, exchange rates, economic growth, and interest rates on FDI growth rate in Kenya. This study adopted the theories of Product Life Cycle, Eclectic Paradigm, and the Internalization to help explain the relationship between the various macro-economic variables and FDI growth rate based on previous studies. Target population was secondary data collected for a period of 35 years (January 1985 to December 2019). That is 175 observations for all the variables and purposive sampling was used as the data is of definite nature. The study employed a descriptive research design and a multiple linear regression model that were used to analyze the relationship between the variables. Data was analyzed using EVIEWS version 16. Results showed that GDP growth rate (r=0.39, p<0.05), foreign exchange rates (0.63 p<0.05) had a significant positive relationship to FDI inflows in Kenya while annual interest rates and annual inflation rate had significant negative relationship with FDI at r=-0.27, p>0.05 and -0.15, p<0.05 respectively. Furthermore, an R-squared of 0.5056 translating to 50.56% was attained indicating that the four independent variables account for 50.56% of the variance in FDI (influence (Prob(F-statistic) =0.000221). The Central Bank of Kenya and national treasury should enhance measures to curb the increasing inflation rate and stabilize the interest rates in the country to attract and retain more investors in the country. Moreover, Further research needs to be conducted in the neighboring nations or otherdeveloping nations whose economic status matches Kenya to confirm if the macroeconomic variables affecting the FDI inflows to Kenya holds in those environments and also further research can be done on the impact of FDI on different sub sectors of the economy of Kenya so that effects to increase FDI inflows can be more deliberate and geared towards specific sub sectors that drive the economy of Kenya.