Real Interest Rate, Inflation, Exchange Rate, Competitiveness and Foreign Direct Investment in Kenya

Abstract

Purpose: The purpose of this study was to establish the effect of real interest rates, exchange rate, inflation and competitiveness on FDI in Kenya. Methodology: The study used annual time series data for the period 1970-2016. The sources of data included World Bank Indicators and Kenya National Bureau of Statistics annual reports. Data was collected for the variables real interest rates, exchange rates, inflation rate, competitiveness/ease of doing business and FDI. The data for all the variables was in percentage. The study employed ordinary least square regression technique to determine the effect of real interest rate, exchange rate, inflation and competitiveness on FDI in Kenya. Results: From the findings, the study concluded that real interest rates and exchange rates have negative and significant influence on FDI inflows into Kenya. Further, the study concluded that competitiveness has a positive and significant influence on foreign direct investment inflows into Kenya. However, inflation was found to have insignificant influence on FDI.Unique Contribution to Policy: There is need for favourable interest rates, desirable exchange rates and liberalization of the economy by undertaking comprehensive programmes to trade reforms, designed to open the economy and increase its competiveness. The Kenyan government should also encourage freedom of capital transactions with foreigners and competition in domestic market.

Macroeconomic factors affecting FDI in the African region

“…However, authors further suggested that the characteristics of countries indicated a substantial influence on the nature of the IR impact on FDI as well [25,26]. According to Musyoka [27] and Nyanyuki [28], both RIR and currency rates negatively and significantly influence FDI inflow in Kenya. In contrast, a study in Kenya highlighted that the IR has a favourable impact on FDI inflows to Kenya's energy and petroleum sector [29].…”

The effects of monetary policies on foreign direct investment inflows in emerging economies: some policy implications for post-COVID-19

“…Accordingly, to increase more FDI into Pakistan, authorities of the country need to ensure a stable and low-interest rate level. By using annual time series data for the period 1970–2016, Musyoka and Ocharo [ 38 ] employed the OLS technique to determine the effect of real interest rate and exchange rate on FDI in Kenya. Empirical results show that real interest rates and exchange rates have a negative and significant influence on FDI inflows into Kenya.…”

Determinan Foreign Investment Direct (FID) di Indonesia

“…Hal ini didukung oleh teori marginal efficiency of capital yang menyatakan bahwa perusahaan internasional dalam berinvestasi akan memilih tingkat pengembalian yang tinggi dari tingkat bunganya. Penelitian ini sejalan dengan penelitian Kustina et al, (2018); Dewi & Triaryati, (2015); Sari & Baskara, (2018); Musyoka & Ocharo, (2018) dan Okafor, (2012) yang menyatakan bahwa suku bunga memiliki pengaruh pengaruh yang negatif dan signifikan tehadap Investasi Asing Langsung. Namun, tidak sejalan dengan penelitian Eliza & Ismail, (2012) ;Kiplagat, (2016); Septifany et al, (2015) dan Aditama et al (2014) yang menyatakan bahwa suku bunga berpengaruh positif dan signifikan terhadap investasi asing langsung.…”

“…Hal ini didukung oleh teori the currency areas hypotesis yang menyatakan bahwa perusahaan asing yang memiliki nilai mata uang yang lebih kuat dibandingkan negara lainnya, cenderung akan berinvestasi dengan negara yang memiliki mata uang yang lebih lemah. Hasil penelitian ini sejalan dengan penelitian dari Musyoka & Ocharo, (2018);Kiplagat, (2016) dan Septifany et al, (2015), yang menyatakan bahwa Nilai Tukar memiliki pengaruh pengaruh yang negatif dan signifikan tehadap Investasi Asing Langsung. Namun, hasil penelitian ini tidak sejalan dengan penelitian Sari & Baskara, (2018); Akther & Shamima, (2016) dan Okafor, (2012) yang menyatakan bahwa nilai tukar berpengaruh positif dan signifikan terhadap investasi asing langsung.…”

“…Pendapat tersebut didukung oleh teori the currency areas hypotesis yang menyatakan bahwa perusahaan asing yang memiliki Khaerunnisa et al Determinan Foreign Direct Investment (FDI) di Indonesia Majalah Ilmiah Majanemen dan Bisnis (MIMB), 2022 | 13 nilai kurs (mata uang) yang lebih kuat dibandingkan negara lainnya, cenderung akan berinvestasi karena negara yang bermata uang lemah. Pendapat tersebut didukung oleh penelitianFebriana & Muqorobbin (2014),Musyoka & Ocharo (2018) danKiplagat (2016) yang menyatakan bahwa nilai tukar berpengaruh negatif dan signifikan terhadap foreign direct investment.…”