• The determinants and impact of foreign direct investment (FDI) in Kenya and Tanzania: an OECD and non-OECD perspective 1996-2016

      Cook, Mark; Zheng, Lucy; Odunga, Peter Shoko (University of Wolverhampton, 2020-03)
      This thesis investigates the determinants of FDI and FDI’s subsequent effect on the growth and export between and within Kenya and Tanzania, using panel data analysis (pooled and fixed effect models) comprising of 22 home countries for Kenya and 23 for Tanzania for the period 1996-2016. The investigation of both the determinants and impacts of FDI is considered on the basis of the heterogeneity of investing MNEs in terms of economic development levels by grouping the home countries into OECD and non-OECD countries between and within Kenya and Tanzania. The study employed quantitative methods and the findings of this thesis reveal for the determinants that imports, infrastructure development and institutional factors are important for both countries. However, mineral resources and cultural distance, financial crisis of 2008 are important for Kenyan full sample while human capital, labour force, agglomeration and exchange rates are important for Tanzanian full sample of FDI home countries. Exchange rates and infrastructure development determine FDI flows from OECD into both countries, whilst cultural distance and quality of institutions, agglomeration and financial crisis of 2008 are determinants of FDI from OECD countries into Kenya, imports and human capital and natural resources, agglomeration and financial crisis of 2008 determine FDI from OECD countries into Tanzania. Meanwhile, infrastructure attracts FDI from non-OECD countries into the two countries. However, non-OECD FDI in Kenya is determined by market size, exchange rates and quality of institutions as human capital, exchange rates, imports and inflation rates determine FDI flows from non-OECD countries into Tanzania. The findings obtained also show that the impact of FDI is positive and significantly correlates with economic growth in Kenya within all the three contexts of full sample, OECD and non-OECD home countries. However, it is only FDI from non-OECD countries that is positive and significantly correlates with economic growth in Tanzania. The results on economic impact further show that the magnitude of the effect of FDI is higher when the investments originate from non-OECD countries compared to OECD countries into both Kenya and Tanzania. The empirical findings further confirmed that while FDI from the full sample, OECD and non-OECD countries contribute positively and significantly to export performance in Kenya, only FDI from OECD countries make a positive and significant contribution to the export performance in Tanzania. There is a difference in the intensity of the impact of FDI on export performance in Kenya and Tanzania, with non-OECD countries having greater effect on export performance in both Kenya and Tanzania compared with OECD countries. The research contributes to the body of knowledge of FDI/IB literature by providing empirical evidence on the specific determinants of inward FDI and its impact on Kenya’s and Tanzania’s economic growth and export performance by considering the heterogeneity between investing MNEs. Another contribution is also, the comparison between two countries and examination of heterogeneity of inbound FDI as well as policies that can be used by governments of Kenya and Tanzania in managing FDI inflows.