Gabriel Omondi Odero; Kipkoech Cheruiyot

Foreign Direct Investment’s patterns on the Kenyan economy has been minimally investigated by researchers, notwithstanding its hypothetical dynamics it experiences from other covariates in the Kenyan economy. This study was aimed at examining the effect of Gross Domestic Product (GDP) and capital formation on the Kenyan economy. The study used annual FDI, GDP and capital accumulation datasets from the World Bank Sources. The analysis entailed multiple regression modelling, with the assumptions of ordinary least square models such as linearity, heteroskedasticity factored. The results informed that GDP and capital formation had a negative effect on FDI in Kenya. Furthermore, GDP proved statistically insignificant in predicting annual FDI, whereas capital formation and the intercept registered significant effects. The findings also informed that FDI would still be positive in the absence of covariates. The study vouched for the need for the Kenyan Government to encourage more investments to enhance capital formation and better the investment landscape in the country. Moreover, the Government through treasury should undertake cost benefit analysis to assess the significance of the FDI injected into the economy