ANTECEDENTS OF ECONOMIC GROWTH IN KENYA

Authors: Peter Dennis Mutuku & Wanyoike Charles Githira

ABSTRACT

FDI, exports, gross capital formation and government expenditure play a significant role in shaping Kenya’s economic landscape. This has been through contributing to job creation, developing the infrastructure, and the expanding the industries. It has attracted investors from various sectors, such as manufacturing, services, and natural resources, due to Kenya’s strategic location, which is favorable business environment, and robust economic policies. Kenya has experienced steady growth in FDI inflows over the years. However, the magnitude of these inflows has remained relatively modest compared to other developing countries. The Gross capital formation, is vital for the economic growth this is through investments in infrastructure, machinery. In Kenya, efforts to increase gross capital formation have focused on sectors like manufacturing, agriculture, and transportation to enhance competitiveness and stimulate economic growth. Exports also play a vital role in economic growth by generating foreign exchange earnings, promoting international trade, and creating opportunities for local industries to expand and diversify. Kenya has actively pursued export-oriented policies, particularly in sectors like agriculture, horticulture, and manufacturing, to leverage its comparative advantages and enhance its participation in global markets. Government expenditure, especially in strategic sectors like education, healthcare, and infrastructure, has a significant impact on economic growth. Effective utilization of public funds can create an enabling environment for private sector activities, attract investments, and enhance productivity. The Kenyan government has allocated substantial resources to key sectors with the aim of enhancing human capital development, improving physical infrastructure, and creating an investor-friendly environment. Research studies have provided mixed findings regarding the impact of FDI on economic growth in developing countries. Some studies have shown a positive relationship between FDI inflows and GDP growth, highlighting the contributions of FDI to capital formation, technology transfer, job creation, and productivity improvement. However, challenges and concerns related to enclave development, limited spill-over effects, and the quality and sustainability of FDI remain. The current study has found that Foreign Direct Investment (FDI) inflows, gross capital formation, exports, and government expenditure pose a significant impact on Economic Growth.

Keywords: Foreign Direct Investment inflows, Gross capital Formation, Exports, Government Expenditure, Gross Domestic Product growth.

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