Outward Foreign Direct Investments and Economic Growth: An Investigation of Kenya

Abstract

Purpose - The purpose of this study was to evaluate the effect of outward foreign direct investments on economic growth in Kenya. Design/methodology/approach - The study applied the panel data model to analyze the data collected. Unit root tests were also conducted on the variables to avoid the problem of having a spurious regression or white noise in the model. The Levin, Lin and Chu T- statistic test for stationarity which is suitable for panel data sets was used for this study. A Hausman test was conducted to determine whether to use the fixed effects model or the random effects model to address the objectives of the study. Findings - OFDI had a coefficient of 0.06 and a probability value of 0.0011 which is significant at 5 percent level of significance. This means that when OFDI grew by 0.06 units then GDP grew by 1 unit during the period of study. Practical implications - As such there is a positive and significant relationship between Outward FDI and economic growth to a magnitude that a o.06% increase in outward FDI will translate to a 1% increased economic growth. As such, outward FDI is beneficial to Kenya's economic growth. Originality/value - This study advances OFDI theory and contributes to the growing discussion on the effect it has on the developing country's economy. The study also offers practical contributions on how the government can take a deliberate effort to spur economic growth by regulating the level of outward FDI as this determines the effectiveness of policymaking and fosters international mutual understanding, cultural exchange and firm growth and innovation. Ultimately, this contributes to a healthy economy.