Mugendi, Charles NdegwaNdegwa, CharlesNganga, Tabitha KiritiMuchai, Diana2022-05-302022-05-302015Mugendi, C. N., Gachanja, P. M., Nganga, T. K., & Muchai, D. The nature of foreign direct investment spillovers effects on domestic firms in Kenya.2186-8662http://ir-library.ku.ac.ke/handle/123456789/23780A Research Article in the International Journal of Development and SustainabilityDuring the recent years, it has been observed that countries compete with each other to attract foreign investment. This has been done owing to the notion that when foreign companies invest in a host country, productivity gains are assumed to accrue to domestic firms’ from spillovers generated by foreign affiliates. Empirical studies have shown that spillovers from foreign to domestic firms depend mainly on the country and host firms’ characteristics. Therefore, this study attempted to empirically examine the nature of FDI spillovers on domestic firms in Kenya. The study looked at the transmission mechanism, that is, both horizontal and vertical linkages. To achieve this objective primary data was collected from various firms in Kenya; this was from a sample of 204 firms from Nairobi, Nakuru, Mombasa and Kisumu cities. A panel of three years was taken, for the period 2010 to 2013. The data was captured using a structured questionnaire which was administered to various firms. A fact sheet was used to summarize the data collected before it was cleaned, coded and edited for completeness and accuracy. Thereafter analysis was done using descriptive statistics. The study found that foreign firms influenced domestic firm’s productivity through both vertical and horizontal spillovers in Kenya. Foreign firms were found to channel horizontal spillovers through competition effect, demonstration effect and labor turnover effects. On vertical spillovers small firms were found to benefit most from selling of goods and services to foreign firms.enFDI spilloversTransmission mechanism;Domestic firmsFirms ’s productivityArticle