Determinants of Foreign Direct Investment Growth: Kenya’s Manufacturing Sector

Abstract

The FDI indicators in Kenya show a mixed signal and although institutional indexes for Kenya have been worsening over the years, foreign direct investment inflows (FDI) though sluggish has been on the rise. While many theories of FDI have been put forward, mostly ownership, location and internationalization (OLI), the extent to which institutional determinants influence growth of FDI in the Kenyan manufacturing sector has not gotten adequate attention. The combination of institutional determinants and OLI framework in determining flows of FDI has been avoided in this sector. This study using FDI inflows in the Kenyan manufacturing sector and governance indicators data performed a cross-sectional analysis for the period 2009-2013. The findings indicated significant positive relationship between governance and FDI growth which implies that governance determines growth of FDI in the Kenyan manufacturing sector. The evidence presented confirms that a good political climate and good corporate governance are important for foreign investment to flow into a Country.

Keywords: foreign direct investment; corporate governance; political risk; manufacturing sector