Muli, Daniel Kyalo2019-10-232019-10-232019-04http://ir-library.ku.ac.ke/handle/123456789/19864A Research Project Submitted to the Department of Economic Theory in the School of Economics, in Partial Fulfillment of the Requirement for the Award of Degree of Masters of Arts of Kenyatta University, 2019FDI can be defined as capital inflow into a country aimed to acquire investment in another country for profit or any other purpose. On the other hand, gross national product is the basic national accounting measure of the total national output of goods and services within a period of one year. Since FDI is a foreign capital that supplements domestic capital, it is expected that, its increase should lead to the growth of the national output. In the recent past, Kenya has experienced a consistent growth in FDI yet little can be said about the growth of the national output. This raises the question on the relationship between the two indicators. It is expected that, FDI increase should cause growth of employment. This reasoning is based on the effect that FDI has on the capital stock. This has not been the case in the country as employment continues to fall with increase in FDI. This paper’s objective was to investigate the effect of foreign direct investments (FDI) on GDP and employment in Kenya. To address this problem, the study used time series data for FDI, GDP, employment and other variables as identified in literature for the period1990-2016. Diagnostic tests such as tests of unit root were done to achieve stationarity of the variables used in order to obtain reliable estimates. To address the objectives of this study, the ordinary least squares (OLS) method was used to explore the effect of FDI on both employment and GDP in Kenya. The study found out that, FDI was an important variable affecting both growth of output and employment in the country. The study recommended adoption of policies that can enhance the flow of FDI to ensure consistent improvement of the variablesenThesis