Theses and Dissertations
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Item Modeling the effect of real exchange rate volatility on foreign direct investment in Kenya: a garch approach(KCA University, 2025) Muruny, Haron K.Foreign direct investment (FDI) is central in Kenya’s economic progress, boosting capital, technology, and employment. However, exchange rate volatility, driven by inflation, trade imbalances, and external shocks, creates uncertainty that could potentially deter FDI in emerging markets like Kenya. Kenya’s FDI at 1.4% of Growth Domestic Product (GDP) in 2023 lags behind Ethiopia’s 3.7% and Tanzania’s 2.1%, signaling a competitiveness gap. Prior studies, often using static OLS, overlooked time-varying volatility and risk aversion frameworks, limiting insights into Kenya’s FDI dynamics. Specific objectives examined how exchange rate volatility, inflation volatility, trade openness, interest rate differentials, foreign exchange reserves, and GDP growth (control) impact FDI. This study modeled real exchange rate volatility’s effect on FDI inflows (1993–2023), alongside inflation volatility, trade openness, interest rate differentials, foreign exchange reserves, and GDP growth, using a quantitative time-series design. It offered investor’s strategies to navigate risks, guided policymakers on stability-focused reforms, and enriched academic literature on volatility-FDI linkages. Employing a quantitative time-series design, data from World Bank, Central Bank of Kenya, and IMF were analyzed using a GARCH (1,1) model to estimate volatility, integrated into OLS regression with GDP growth control. Findings revealed exchange rate volatility (β=0.026, p=0.472) and inflation volatility (β=0.011, p=0.627) had insignificant impacts on FDI, contrary to expectations. Trade openness (β=0.084, p=0.083) and foreign exchange reserves (β=2.53, p=0.000) significantly drove FDI, while interest rate volatility and GDP growth were insignificant. Co-integration suggested long-run equilibria, with the model explaining 74% of FDI variation (R²=0.74). Results indicated that GDP growth mitigated volatility risks, enabling investors to tolerate fluctuations in resilient markets, while openness and reserves signaled market access and stability, respectively. This highlighted the critical role of economic growth in moderating macroeconomic uncertainties, particularly during crises like 2008 and 2020. The study concludes that Kenya’s FDI inflows were resilient to exchange rate and inflation volatility when supported by robust economic growth, with trade openness and reserves as primary investment drivers. Recommendations include policymakers prioritizing reserve accumulation through export promotion to buffer shocks, deepening engagement in trade agreements like AfCFTA to enhance market access, and investing in infrastructure to sustain GDP growth, mitigating volatility’s effects. In practice, investors should adopt hedging strategies during growth phases to minimize risks and sustain engagement in Kenya’s dynamic market, ensuring long-term investment success.Item Effect Of Foreign Inflows On The Economic Growth Of East African Member Countries(KCA University, 2020) Ringera, Peninah M.The main objective of this study was to investigate the effect of foreign inflows on economic growth of East African Community countries. Three independent variables including foreign direct investment, personal remittance and external debt were reviewed to evaluate their effect on gross domestic product of EAC countries. The specific objectives for this study were to evaluate the effect of external debt on economic growth of East African Community countries, assess the effect of foreign direct investment on economic growth of East African Community countries and investigate the effect of remittances on economic growth of East African Community countries. Theories applicable to the study such as debt overhang theory, internationalization theory and utility theory were reviewed. To accomplish the study objective, Pooled Ordinary Least Squares model was recommended based on model estimation performed for panel data of three countries using Hausman test and Breasch –Pagan LM tests. The target population sample size was three East African Community member countries that signed into the union in 1993 and they include Kenya, Uganda and Tanzania. A panel data covering a period of 20 years from 1999-2018 was used. Rwanda and Burundi acceded the treaty agreement in July 2007 while South Sudan joined in April 2016. Data was obtained from World Bank’s African Development indicators, reports from bureau of statistics from each of the countries, data from central bank for each of the countries and information published on the website. This study concludes that foreign direct investment has significant impact on gross domestic product of East African Community Countries. Foreign direct investment therefore, is one of the foreign inflows that has an effect on economic growth of East African Community Countries. The results from this study also found the coefficient for remittance was positive but statistically insignificant. The results from this study found that external debt negatively affect the gross domestic product of East African Community countries. More studies would also be recommended to investigate the negative effect on gross domestic product for East African Community countries by external debt. Little or no research has been conducted to investigate the existence of debt overhang or debt crowding out effect specifically in East African Community countries. Further research is recommended as this would give more insights to East African Community countries on how to deal with external debts to avert the negative effect on economic growth and development.