Foreign Direct Investment, Trade Openness and Economic Growth in Kenya: Empirical Analysis Using ARDL Approach

Gachoki Emilio Munene
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Gachoki Emilio Munene: School of Economics, Capital University of Economics and Business, Beijing, China.

International Journal of Science and Business, 2023, vol. 28, issue 1, 115-126

Abstract: This study aimed to examine the impact of foreign direct investment and trade openness on Kenya's economic growth for the period between1975–2021. To do so, the study applied the Autoregressive Distributed Lags (ARDL) model to explore the long run and short run effect among the variables. The result of bound test cointegration confirms the presence of cointegration among the variables. Findings from ARDL suggest that FDI and trade openness positively influence economic growth in the long-run. The short-run results revealed that trade openness was found to have a positive and significant impact on FDI. However, in short run, the impact of FDI on economic growth is not statistically significant. Similarly, economic growth had a favorable and long-run impact on FDI, while its short-run effect was minimal. The error correction term shows annual adjustment from any deviation in the previous period will be corrected by a speed of 99% in the long run. Therefore, the study recommends that directing FDI towards industries that are focused on exports is significant and promotion of export-led growth would enhance economic growth in Kenya economy.

Keywords: FDI; Trade openness; Economic growth; ARDL model; Kenya (search for similar items in EconPapers)
Date: 2023
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