Relationship Between Foreign Direct Investments And Economic Growth In Kenya.

Abstract

Since the end of cold war and fall of the communism in late 1980`s, many counties have been restructuring the economies to make them more competitive in globalised world. These countries have looking for alternatives that can help the economies grow and achieve a desired level capable of sustaining the bulging populations. One of the major areas that have been considered for this is to increase the level of foreign direct investment. This has lead to an increased interest in the issue of foreign direct investments (FDI) and the role it plays in the overall economic development, among various stakeholders both at national and international levels. The increase of FDI to various countries particularly developing countries like Kenya has continued to fuel debate on their development potential in recipient countries. The part played by foreign direct investments foreign direct investments in supporting growth of economy has been the area under discussion for a considerable period of time among various groups of people with interest in economy including those who receive and are beneficiaries of foreign direct investments in general and Kenya specifically. These discussions have also resulted in many studies being carried out assess not only the effects and impact of FDI to economic growth but also the relationship between FDI and economic growth. Despite this, the numbers of empirical studies that examine the relationship between economic growth and foreign direct investment in Kenya are few and not very conclusive, creating a literature gap on the same subject. This study therefore, sought to establish the relationship between foreign direct investments and economic growth in Kenya and establish, using causal study whether changes in the foreign direct investments cause changes in the economic growth or whether changes in GDP causes changes in foreign direct investments. The general objective of this study therefore was therefore to evaluate the relationship between foreign direct investment and economic growth of Kenya. To achieve this objective this study applied the time series analysis. The conclusion of this study is that there is a positive relationship foreign direct investments and economic growth in Kenya. The study also concludes the there are no causation links between the foreign direct investments and economic growth in Kenya.