Effects of Macroeconomic Factors on Foreign Direct Investment in Kenya

Abstract

This study examined the effects of macroeconomic factors on foreign direct investment in Kenya (FDI). The study used four macroeconomic variables namely foreign exchange rates, tax rates, inflation rates, interest rates and balance of payment for the period 1970 to 2010. The study used a multiple linear regression analysis with the FDI inflows as the dependent variable and the macroeconomic factors as the independent variables. The study found a positive relationship between FDI and interest rates as well as balance of payments while inflation and tax rate had negative relationship with FDI. The study recommended that the government should promote a stable macroeconomic environment in the country to enhance FDI.

Keywords: Interest rate, Inflation rate, Exchange rate, Tax rate, Balance of Payments, Foreign Direct Investment.

DOI: 10.7176/EJBM/11-3-06