EFFECT OF FISCAL POLICY ON FOREIGN DIRECT INVESTMENT INFLOWS IN KENYA

Authors

  • Pearl Kemunto Evans Jomo Kenyatta University of Agriculture and Technology
  • Dr. Peter Kariuki Department of Business Studies: University of Embu
  • Dr. Fredrick Wafula Department of Commerce and Economic Studies: Bomet University College

DOI:

https://doi.org/10.47604/ijfa.1472

Keywords:

Fiscal Policies, Foreign, Direct Investment Inflows

Abstract

Purpose: The purpose of this study was to assess the impact of fiscal policies on Kenya's foreign direct investment inflows. The independent variable included fiscal policy with external public debt, domestic debt, infrastructure and tax.

Materials and Methods: The research attempts to explain the FDI inflows in Kenya and was calculated quarterly on the basis of FDI inflows in the nation. For 20 years (January 1998-December 2017) secondary data were gathered annually. In order to investigate the association between the variables the study utilized a descriptive research methodology using a time series model. For data analysis objectives, Python software was utilized.

Results: Regression of coefficients results shows that government expenditure on infrastructure and FDI are positively and significantly. It was also revealed that external debt and FDI are negatively and significantly related. Domestic debt and FDI are negatively and significantly related. The results regression results showed that taxation measured as tax revenues and FDI are positively and significantly related.

Unique contribution to theory, practice and policy: The study findings validate the internalization theory. Findings indicate that the theory is applicable in the study of investments. In addition, the findings may in future serve as platform for additional studies in the same subject for other academics, students and researchers. Investors would benefit from the recommendations set out in this study to attract more FDI investment by implementing trade-balanced actions, limiting corruption, implementing income-collection tax policies and promoting international trade to ensure competitiveness in Kenyan products.

Downloads

Download data is not yet available.

References

Adam, A. M. &Tweneboah, G. (2009). Foreign Direct Investment and Stock Market Development: Ghana's Evidence, International Research Journal of Finance and Economics, 26(2), 44-69

Afonso, A. & Sousa, R. M. (2011). What are the effects of fiscal policy on asset markets? Economic Modeling, 28(4), 1871-1890

Agiomirgianakis, G., Asteriou, D., &Papathoma, K., (2003). The Determinants of Foreign Direct Investment: A Panel Data Study for the OECD Countries. http://www.city. ac.uk/economics/dps/discussion papers/0306.pdf.

Akram, N. (2010). Impact of Public Debt on the economic growth of Pakistan. Journal of Economic Literature (JEL), H63, O43, E22, C22

Asiedu,E. (2002). On the determinants of foreign direct investment to developing countries: Is Africa different? World development, 30 (1), 107-119.

Ayanwale, A. B., &Bamire, S. (2004). Direct Foreign Investment and Firm level Productivity in the Nigerian Agro/Agroallied Sector, Journal of Social Science, 9 (3): 215-216.

Azam, M., &Lukman, L. (2010). Determinants of Foreign Direct Investment In India, Indonesia and Pakistsan.:A Quantitative approach. 4(1), 1-47.

Borensztein, E. (2008). How does foreign direct investment affect economic growth? Journal of international Economics, 45, 115-135.

Buckley, P. J &Casson, M. C. (1976). The internalization theory of the multinational enterprise: A review of the progress of a research agenda after 30 years. Journal of International Business Studies 40 (9), 1563-1580

Casson, M. (1983). Economic analysis of international supply chains: an internalization perspective. Journal of Supply Chain Management, 49(2), 8-13

Caves, R.E., (1996). Multinational Enterprise and Economic Analysis, Cambridge University Press, 2.

Chaves, A. (2010). The impact of taxes on international trade and foreign direct investment.Ph.D. thesis, University Of Delaware.

Demirhan, E., &Masca, M., (2008). Determinants of Foreign Direct Investment Flows to Developing Countries: A Cross-Sectional Analysis. Prague Economic Papers, (4), 356-369. http://doi.org/10.18267/j.pep.337

Denisia, V. (2010). Foreign direct investment theories: an overview of the main FDI theories, European Journal of Interdisciplinary Studies

Dunning, J. (1993). Foreign Direct Investment and Governments: Catalysts for economic restructuring. London: Routledge.

Dunning, J.H. (2005).Transnational Corporations and Growth of Services: Some conceptual and theoretical issues. New York: United Nations.

Ernst & Young (2015). Attractiveness Survey; Africa.

Gastanaga V., Nugent J., &Pashamiova B. (1998). Host Country Reforms and FDI Inflows: How Much Difference Do They Make? World Development 26(7), 1299- 1314.

Habimana, A. (2005). The effects of External Debt Burden on Capital Accumulation. A case Study of Rwanda.University of the Western Cape.

Hartman, D. G. (1984).Tax policy and foreign direct investment in the United States. National Tax Journal, 475-487.

Hayami, Y. (2001). Development economics: From the poverty to the Wealth of Nations. Oxford, London: Oxford University Press.

Hill, C. (2005).International Business, 5th Edition, McGraw Hill.

Hunady, J., &Orviska, M. (2014). Determinants of Foreign Direct Investment in EU Countries: Do Corporate Taxes Really Matter? Procedia Economics and Finance,12, 243-250.

Hung, T. T. (2001). Impacts of Foreign Direct Investment on Poverty Reduction in Vietnam, IDS Program, GRIPS

IMF, (2005). Balance of Payment Manual, New York: International Monetary Fund International Monetary Fund (IMF), Ex Post Assessment of Longer-Term Program Engagement

IMF, (2010). Regional Economic Outlook: Asia and the Pacific

Ismaila, M. &Imoughele, L.E. (2010).Macro-economic Determinants of Economic Growth in Nigeria: A Co-integration Approach.

Khan, J. A. (2008).Research Methodology. New Delhi. APH Publishing Corporation

Kinaro, E.O (2006). Determinants of Foreign Direct Investment in Kenya Institute African de Development Economiqueet de planification. Dakar

Kinuthia, B.K. (2010). Determinants of Foreign Direct Investment in Kenya; New Evidence.Paper submitted for the annual African International Business and Management (AIBUMA) Conference in Nairobi in August 2010.

Kinuthia, M.M.E. (2012).Determinants of Foreign Direct Investment in Kenya. Unpublished MSC project, University of Nairobi.

Klein, T. (1994).External Debt Management. World Bank Staff Papers, Issue 245.

Klemm& Parys (2009, July).Empirical Evidence on the Effects of Tax Incentives. Retrieved from http:// www.imf.org/external/pubs/ft/wp/2009/wp09136.pdf

Mahiti, F.M. (2012), Determinants of Foreign Direct Investments (FDIs) in East Africa Countries of Tanzania and Kenya, Unpublished MSc-A&F Thesis, Mzumbe University.

Mamatzakis, E. C., (2001). Public Spending and Private Investment: Evidence From Greece. International Economic Journal, 15(4), 33-46.

Masika, A. M. (2010). Factors Influencing Real Estate Property Prices.A Survey of Real Estates in Meru Municipality, Kenya.Kenya Methodist University, Meru.

Mishkin, F.S. & Eakins S. (2009).Financial Markets and Institutions (6thed.). Pearson Prentice Hall

Morisset, J., &Pirna, N. (2001). How Tax Policy and. Incentives Affect Foreign Direct Investment: A. Review. Working Paper No. 2509, The World Bank

Muema, J. (2013).An Analysis of the Determinants of Foreign Direct Investment in Kenya. Unpublished MBA project, University of Nairobi.

Munteanu, S. and Tudor, E. (2009), The influence of international economic crisis to Romanian foreign direct investments, The Ninth International Conference Investments and Economic Recovery, Economieseria Management, 12 (1), 73 85

Mwega, F.M., &Ngugi, R.W. (2007).Foreign Direct Investment in Kenya, Foreign Direct Investment in Sub Saharan Africa: Origins, Targets, Impact and Potential.Africa Economic Research Consortium.

Nwankwo, A. (2006). The Determinants of Foreign Direct Investment Inflows (FDI) in Nigeria.6th Global Conference on Business & Economics.

Nyamwange, C. (2009). The relationship between real exchange rates and international trade in Kenya.Unpublished MBA project. University of Nairobi.OECD.(2002). Tax Effects on Foreign Direct Investment.Policy Brief, 1-8.

Okafor, H. O. (2012). Do domestic macroeconomic variables matter for foreign direct investment inflow in Nigeria.Research Journal of Finance and Accounting. 3, 9-21

Olson, M. (2008).The rise and decline of nations: Economic growth, stagflation, and social rigidities. Yale University Press.

Omweri, V. M. (2013). Determinants of foreign direct investment stock to countries of the east african community, Unpublished MSC Project. University of Nairobi

Onyeiwu, S. (2005).Analysis of FDI flows to Developing Countries: Is the MENA Region Different? Unpublished PhD Thesis, Meadville: Allegheny College.

Ostadi, H., &Ashja, S. (2014). The relationship between external debt and foreign direct investment for D8 member countries.Walia Journal, 30(3), 18-22

Otieno, O.B. (2012).The Impact of Exchange Rate Fluctuation on Foreign Direct Investment in Kenya.Unpublished MBA project.University of Nairobi.

Parliamentary service commission (2012). Unlocking the revenue potential in Kenya (policy working paper series no.2/2010.Nairobi: Government printer.

Ryan, B. (2006).Corporate Finance and Valuation (1sted.).Cengage Learning EMEA.

Siddiqui, D. A. & Ahmad, M. H. (2007). The Causal relationship between Foreign Direct Investment and Current Account: An Empirical Investigation for Pakistan Economy. MPRA Paper No. 19743.

Singhania, Monica, &Akshay G. (2011).Determinants of Foreign Direct Investment in India.Journal of International Trade Law and Policy, 10(1), 64-82.

Slemrod, J. (1990). Tax Effects on Foreign Direct Investment in The United States: Evidence From a Cross-Country Comparison, University of Chicago Pres

Tchereni, B., Sekhamptu, T., &Ndovi, R. (2013).The Impact of Foreign Debt on Economic Growth in Malawi.African Development Review, 25(1), 85-90

Todaro, M.P., & Smith, S. C. (2003).Economic development. Harlow, United Kingdom: Pearson Education Limited.

Uddin, G., &Alam, A. (2009).Relationship between Interest Rate and Stock Price: Empirical Evidence from Developed and Developing Countries (2009). International Journal of Business and Management 4(3), 43-51

Udomkerdmongkol, M., Gorg, H. & Morrissey O. (2013).Foreign direct investment and exchange rates: a case study of U.S. FDI in emerging market countries. Unpublished MBA Thesis, Sunderland University

United Nations Conference on Trade and Development (2002). World Investment Report

United Nations Conference on Trade and Development (2008). World Investment Report.

United Nations Conference on Trade and Development (2015). World Investment Report.

Voorpijl, R. (2011). Foreign direct investment in Kenya: The gains and losses of foreign involvement. Radbound University Nijmegen.MSC Project. Nijmegen

Woodward, D. (2003), Financial Effect of Foreign Direct Investment in the Context of a Possible WTO Agreement on Investment. Presentation to NGO workshop on WTO negotiation on investment and new issues. Geneva, 18-19.

World Bank (2014). Kenya Economic Update: Kenya at work: Energizing the economy and creating jobs

Young, K. H., (1988), The effects of taxes and rates of return on foreign direct investment in the United States, National Tax Journal, 41, 109-121.

Zhang, K.H., (2001). Does foreign direct investment promote economic growth? Evidence from East Asia and Latin America. Contemporary Economic Policy, 19, (2), 175-85.

Downloads

Published

2022-02-22

How to Cite

Evans, P., Kariuki, P., & Wafula, F. (2022). EFFECT OF FISCAL POLICY ON FOREIGN DIRECT INVESTMENT INFLOWS IN KENYA. International Journal of Finance and Accounting, 7(1), 33 – 59. https://doi.org/10.47604/ijfa.1472

Issue

Section

Articles