EFFECTS OF FOREIGN DIRECT INVESTMENTS ON KENYA’S MANUFACTURING EXPORTS TO REGIONAL TRADE BLOCS IN AFRICA

Abstract

Low GDP in Kenya has been contributed by overdependence in low value agricultural exports. This scenario will be improved if it is supplemented by manufacturing exports to regional trade blocs; Common Markets for East and Southern Africa (COMESA) and East African Community (EAC), which is key in achieving vision 2030. This study estimated the effects of Foreign Direct Investment (FDI), on Kenya’s manufactured exports to these regional trading blocs. The gravity model was used and correlational study design was adopted. Panel data was sourced from secondary sources for twenty Kenya’s trading partners (EAC and COMESA) for the period 2005–2015 to capture the operationalization and membership of these trading blocs. Panel data unit root tests were estimated using Im-Pesaran and Shin, and Levin-Li-Chu tests. Haussmann Taylor method was used to choose between fixed and random effect models. The findings showed some outlows with the highest being -1.7743 to Swaziland during the period of study. The FDI was significant with p-value 0.0000 and a coefficient of 0.2515. This implies that FDI has a significant positive effect on manufacturing exports and therefore the government should formulate policies that encourage FDI inflow that promotes the production of manufactured goods in Kenya for exports.