The Influence of Macro-Economic Factors on Foreign Direct Investment Flows in Kenya for The Period Of 2002-2013

Abstract

Foreign Direct Investments (FDI) are imperative for the long-term economic development of global economies as they result to capital creation, technology transfer, competition enhancement and employment creation. Consequently, macroeconomic outcomes resulting from the monetary and fiscal policiesare postulated to influence the FDI. This paper investigates the effect of inflation, real interest rate, real exchange rate, and development expenditure on FDI flows in Kenya between 2002 and 2013 using a regression model and correlation analysis.We find a positive relationship between development expenditure and FDI and a negative relationship between the real interest rate, inflation, and the real exchange rate on FDI. The implications of these findings are that policy makers should focus on controlling inflation and interest rates and maintaining stable exchange rates to enhance FDI flows.