What Slice of the Pie? The Corporate Bond Market Boom in Emerging Economies

2023

IJDCS

Purpose: The purpose of this study was to investigate the moderating role of foreign exchange rate in the relationship between outward foreign direct investments and economic growth in Kenya. The central purpose of any government is to formulate strategies that boost economic growth and correct capital flight. The Foreign Exchange Rate (FER) fluctuations generated by globalization are expected to leverage the effect of capital flight and boost economic growth, but this seems not to happen. Further, the loss of foreign exchange reserves resulting from capital flight demonstrates that some financial savings are lost to the economy. Since FER is a strong determinant of Gross Domestic Product (GDP), the effects of this scenario are a great economic concern. The dependent variable for this study was economic growth, while the independent variable was outward foreign direct investments. The general objective of this study was to investigate the moderating role of foreign exchange rate in the relationship between outward foreign direct investments and economic growth in Kenya. The specific objective was to determine and evaluate the effect of outward foreign direct investments on the economic growth in Kenya as well as to investigate the moderating role of foreign exchange rate in the relationship between outward foreign direct investments and economic growth in Kenya. The indicator of economic growth was the percentage change in GDP. Methodology: This study adopted an ex-post facto research design with a sample size of 35 years from 1986 to 2021 and relied on secondary data from Kenya National Bureau of Statistics (KNBS), International Financial Statistics (IFS), Central Bank of Kenya (CBK), International Monetary Fund (IMF), World Development Index (WDI), United Nations Commodity Trade (UN Comtrade) and African Development Indicators (ADI). Findings: Using a panel data model, the study found that outward foreign direct investments did not have any significant effect on economic growth when foreign exchange rate was included in the model as an interaction variable. Foreign exchange rates had a significant effect on economic growth. The relationship was inverse indicating that the foreign exchange rate affected economic growth negatively. The interaction variable had a positive and significant coefficient indicating that the foreign exchange rate moderated the relationship between outward foreign direct investment and economic growth. Unique contribution to theory, practice and policy: From the empirical findings, we can infer that outward foreign direct investment did not constrain resources and did not affect economic growth.

Section: Outward Foreign Direct Investments Foreign Exchange Rate And...mentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

The Moderating Role of Foreign Exchange Rate in the Relationship between Outward Foreign Direct Investment and Economic Growth in Kenya (1986-2021)

2023

IJDCS

“…al 2015;Auzairy et al, 2016). Increased financial globalization has enabled the international markets to open up to foreign investors, making foreign exchange rate a key determinant to economic growth (Ayala et al, 2015). Poorly managed exchange rates can be disastrous for economic growth, and that a competitive currency is key to a successful economic growth strategy (Henry, 2013).…”

Section: Foreign Exchange Rate Foreign Capital Outflow and Economic G...mentioning

confidence: 99%

Does Foreign Exchange Rate Moderate the Relationship Between Foreign Capital Outflows and Economic Growth? A Panel Data Investigation of Kenya’s Economy (1986-2021)

2023

IJF

Purpose – This study aims to evaluate the nexus between foreign exchange rate, foreign capital outflow and economic growth in Kenya. This study focused on analyzing the moderating role of foreign exchange rate on the relationship between foreign capital outflow and economic growth in Kenya. The foreign exchange rate is an important measure in the economic development. Its fluctuations affect the levels of foreign capital outflow. The loss of foreign exchange reserve due to foreign capital outflow translates to great amount of savings lost in the country. Design/methodology/approach – This study employed a Panel Data approach and the World Bank’s residual model in the estimation of the magnitude of foreign capital outflow from Kenya during the period between 1986 to 2021. Findings – The panel data results revealed that the interaction variable MOD_FER had a coefficient of 0.05 and a significant probability value of 0.0001 which is significant at 5 percent level of significance. This means that foreign exchange rate moderated the relationship between foreign capital outflow and economic growth in Kenya during the period of this study. When the relationship with foreign capital outflow was moderated by 0.05 units then GDP grew by 1 unit. As such, foreign exchange rate is a significant factor in the relationship between foreign capital outflow and economic growth in Kenya. Originality/value – This study calculates the magnitude effect of foreign exchange rate in the relationship between foreign capital outflow and economic growth in Kenya for the first time. In addition, the study calculates the magnitude change of foreign capital outflow for MNE’s due to foreign exchange rate oscillations. This study suggests many policy proposals to deal with the challenge of foreign exchange rate, foreign capital outflow and economic growth in Kenya. The results of this study will benefit policy makers by providing them with data-based evidence that will guide them in making appropriate policies that discourage foreign capital outflow and institute proper management of foreign exchange rate to boost economic growth in Kenya.

“…This is often as a result of institutional shifts such as sovereign wealth fund, mutual funds, pension funds, and insurance companies who have created immense avenues for portfolio diversification as investors seek risk free returns (Auzairy, Fun, Ching, Li, & Fung, 2016). Foreign portfolio investment outflows have a direct effect on the foreign exchange rate as well as the economic growth of a country (Ayala, Nedeljkovic, & Saborowski, 2015). Ceteris paribus, foreign portfolio investment outflows have positive role in a country's economic growth, as it is a source of foreign exchange which would positively contribute to economic growth of a country (Ministry of Trade and Industrialization, 2017).…”

Section: Introductionmentioning

confidence: 99%

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

2023

IJPID

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.