International Journal of Innovative Research and Knowledge

Volume-7 Issue-6, June 2022


Author: Lucy Nyambura Njaramba & Dr. Patrick Masette Kuuya


The contribution of FDI to the development of a country is universally acknowledged as it bridges the gap between a country’s desired investments and the domestically mobilized savings. Since independence, Kenya has designed and implemented two major policy initiatives (of Import Substitution Industrialization and Export Promotion) with a view of attracting FDI and promoting a favorable trade outcome. Although a number of studies on FDI inflows into Kenya have been undertaken, they have yet to establish the benefits Kenya has derived from the two major policy initiatives that aimed at attracting FDI and promoting trade. This is what triggered the need for this study, which sought to determine effects of FDI on trade in Kenya. The overall objective of the study was to examine the effects of FDI on international trade in Kenya. The specific objectives of the study were to determine the effect of trade policy reforms on FDI inflows in Kenya, determine the effects of FDI on exports in Kenya and determine the effects of FDI on imports. To achieve the first objective, a dummy variable was created to represent policy reforms and included in the export and import equations as independent variables. All the three objectives were achieved through estimating the coefficients of the independent variables against the respective dependent variables using Vector Error Correction Model (VECM). The study found that foreign direct investment inflows in Kenya lead to increase in both exports and imports. However, the rate of growth of imports was faster during the export promotion period compared to the import substitution period despite the expected result of a reduction in imports. It further reveals that exports were also determined by gross domestic product, population, and exchange rate whereas imports were determined by gross national income, population, and exchange rate.

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ISSN: 2213-1356

Publisher: Scholar Touch Publishers

Area/Scope: Business, Economics & Management; Social Science, Literature, Arts & Humanities; Engineering & Technology; Life Science & Physical Science, Health & Medical Science

Frequency: Monthly

Format: Online & Print

Language: English

Review Process: Double Blinded

Access: Open Access