Foreign Direct Investment Spill over’s on Domestic Firms: a Case of Kenya’s Domestic Firms
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Date
2016-12
Authors
Mugendi, Charles Ndegwa
Njuru, Stephen Gitahi
Journal Title
Journal ISSN
Volume Title
Publisher
American Research Institute for Policy Development
Abstract
Many developing countries, Kenya included have instituted many measures in order to attract more foreign
direct investment (FDI). These measures sometimes have been at the expense of domestic firms. This is done
with is a general belief that FDI has direct and indirect benefits to the economy. It is believed that foreign
firms act as a catalyst in the development of local firms through positive spillovers effects. This may be
through increased efficiency due to competition from foreign firms, imitation of technology, upgrading of
local suppliers through technical assistance and transfer of knowledge from foreign to domestic firms. But
drawing on the vast technical and managerial resource of its parent, a foreign firm may crowd out domestic
investment. By borrowing locally it may also deprive domestic firms the main source of capital. In addition,
foreign firms may take over domestic firm’s best employees by offering high wages and this reduces efficiency
which eventually decreases the productivity of the domestic firms. Therefore the study empirically evaluates if
domestic firms have benefitted from foreign firms in Kenya. Primary data was collected from three main
cities Nairobi, Kisumu and Mombasa. Panel of three years between 2011 to 2014, was used and FGLS
method of analyses was employed. It was evident that domestic firms benefited from foreign firms through
both horizontal and vertical spillovers. Other variable that affected productivity also included, technological
gap, research and development and level of skills
Description
A Research Article in the Journal of Economics and Development Studies
Keywords
Foreign firms, Horizontal spillovers, Vertical spillovers, Domestic Firm’s Productivity
Citation
Mugendi, C. N., & Njuru, S. G. (2016). Foreign Direct Investment Spill over’s on Domestic Firms: a Case of Kenya’s Domestic Firms. Journal of Economics and Development Studies, 4(4), 45-60.