Impact of Openness, Foreign Direct Investment, Gross Capital Formation on Economic Growth in Kenya

Abstract

The general objective of this study was to assess the impact of impact of openness, foreign direct investment, and gross capital formation on economic growth in Kenya with the years under consideration being 1960 to 2010. There are many components of international trade that effect economic growth, but this paper examined the effect impact of openness, foreign direct investment, gross capital formation on Kenyan economic growth. World Bank data for these variables were analyzed in order to achieve the desired objectives. A multiple linear regression model, Barro growth model, was used to estimate the existing the relationship between variables then ordinary least square method was applied. From the findings, trade openness affect the Kenyan economic growth positively (?₁ = 3.062, p<0.05), while foreign direct investment and gross capital formation had no significant effect on GDP growth rate. Thus, trade openness is major determinant of economic growth particularly in developing countries. This study recommended the policy makers and the government to emphasize trade openness being the robust determinants of economic growth.

Keywords: International Trade, Economic Growth, Trade Openness, Foreign Direct Investment, Gross Capital Formation