Abstract

Private investment, both domestic and foreign is one of the key players in economic development in Kenya. While developing countries as a whole attracted an annual average of $41 of Foreign Direct Investment( FDI) per capita in the period 1996-2003, Kenya only drew average annual inflows of $1.3 per capita, thereby missing out on the global surge in FDI that affected most of the world in the 1990’s. On the one hand, FDI liberalization is a means of promoting competition among firms while on the other hand, inorder to benefit fully from FDI liberalization, countries need to ensure that, as statutory obstacles to contestability are reduced, these are not replaced by anticompetitive practices of firms, be they foreign or domestic. This study attempts to analyse some of the factors influencing FDI inflows into Kenya and of particular interest is the impact that the presence of competition policy has on FDI inflows both in the long and short run. The method of estimation employed was Ordinary Least Squares taking into consideration times series properties of the data. The results of the study is mixed and shows that in long run market size, macroeconomic stability, credible macroeconomic policies and presence of competition policy play a significant role in influencing FDI inflows. While in the short term corporate tax rates, market size, macroeconomic stability, credible macroeconomic policies and presence of competition policy will influence FDI inflows. An important implication is that FDI inflows in Kenya is not driven by openness of the economy. This implies that determinants of FDI in Kenya, is dynamic and mixed. This calls for the government of Kenya to put in place policies aimed at promoting investor confidence by providing a competitive and efficient investment framework, improving macroeconomic stability geared towards enhanced economic growth, improving governance and also putting in place the necessary legal framework to speed up completion of anticompetitive cases.

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School	: School of Law, Economics and Government
Issued Date	: 2006

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