The impact of foreign direct investment on economic growth in Kenya (1980-2022)

Abstract

This major aim of this study is to evaluate the effect of Foreign Direct Investment (FDI) on economic growth in Kenya from 1980 to 2022, using an endogenous growth model. The study employs an Autoregressive Distributed Lag (ARDL) model to analyze time-series data from sources such as the World Bank. Key variables considered include GDP, FDI, inflation, population, exchange rates, government expenditure, and gross fixed capital formation. Results show that FDI positively influences economic growth in the short term through capital inflows, technology transfer, and job creation, but its long-term effects are less significant due to external economic factors and capital repatriation. Kenya has implemented various policies, including privatization and tax incentives, to attract FDI. The research concludes that while FDI is a key driver of economic growth, its long-term success depends on a stable investment environment and effective policy reforms. Policy recommendations include attracting more productive and sustainable FDI, implementing stronger inflation control policies. Future studies should qualitatively assess the specific types of FDI projects to better understand their role in economic development, providing insight into how targeted policy adjustments could maximize FDI benefits for long-term growth.