Effect of Foreign Direct Investments (FDI) Inflow in Kenya on Economic Growth (GDP), Exports and Balance of Payment (BOP)

A Project Submitted to the Chandaria School of Business in Partial Fulfillment of the Requirements for the Degree of Masters of Business Administration (MBA)The purpose of the study was to assess the contribution of FDI inflow on Kenya’s GDP, BOP and exports. This research paper was steered by the following research questions: What are the effects of FDI inflows on Kenyan economic growth (GDP)? What are the effects of the FDI inflows on Kenyan exports? and what are the effects of FDI on Kenya’s Balance of Payment (BOP)? Descriptive research design was used in this study. The research design involved observing and describing the behavior of a subject without influencing it in any way. The study relied on a correlation design. This involved obtaining data concerning FDI inflow, GDP, exports value and finally the BOP value of Kenya. The study focused mainly on Kenya as a country and data used was mainly secondary and was obtained from the Kenya Bureau of Statistics. A checklist developed based on the research questions of the study was used to collect data on the value of FDI inflow and the value of GDP, exports and BOP in the corresponding period. The time series data is from 2002-2011. Data was presented in tables. To ensure effective and efficient data analysis process, the data was analyzed using regression analysis in the statistical package for social sciences (SPSS). The data was then analyzed using descriptive, correlation, regression and analytic statistical methods and presented using tables and figures for clarity and ease of understanding. The study found that FDI inflow into Kenya has a positive relationship with the country’s economic growth. An increase in the level and value of FDI inflow to the country led to an increase in the county’s GDP. The finding on this relationship between FDI inflow and the country’s GDP revealed that the more FDI inflow into the country is health to the country’s economic growth. Regarding the relationship between FDI inflow in Kenya and the country’s exports, the study further found out that there was a negative correlation between FDI inflows and the level and value of the country’s exports. This implies that for every increase in the value and level of FDI inflow to the country, the country’s exports reduced. The study finding on the relationship between FDI inflow in Kenya and the country’s BOP was positive. For any increase in the value of FDI inflow into the country, there is an increase in the value of the country’s BOP. The finding revealed that the country’s BOP partly depends on the FDI inflow to the country and that more and more FDI inflow to Kenya is health to the country’s BOP. The study concluded that the relationship between FDI and GDP is positive but the significance of the relationship will depend on the host country’s types of investment, operational policies and even the period of the study. On the relationship between FDI inflow and the host country’s export, the study concluded that though the relationship was found to be negative, that the significance of the relationship to whether it is positive or negative also depends on the country of study, the economic policies in place and even the types of investments these FDIs venture in. and finally on the relationship between the FDI inflow and the BOP, the study concluded that the margin of significance rely on the industry, the country’s policies and the period of study. In light of these findings, the overall conclusion of the study is that FDI inflow has effect on the Kenya’s economy and is critical to the economy of the Kenya. The study made several recommendations among them the need for the government to improve the factors that favour the inflow of FDI to enhance rapid economic development and improve on the BOP. The recommendation for further study was that a similar study needs to be conducted on the other effects of FDI inflow to the host country like employment creation, on the standard of living