The Association between ease of doing business attributes and net foreign direct investment flows into Kenya’s manufacturing sector

Abstract

The manufacturing sector plays an important part in the economic development of Kenya and forms a critical pillar in the achievement of the government’s Big Four agenda. Attracting Foreign Direct Investment (FDI) into the manufacturing sector has been listed as one of the objectives of the government with the aim of revitalizing the performance of the sector in the future. One of the critical factors identified in attracting FDI into a country are the Ease of Doing Business (EDB) attributes. The purpose of the study was therefore to examine the association between EDB attributes and net FDI flows into Kenya’s manufacturing sector. In doing so, the study was guided by four specific objectives which aimed at analysing the association between specific EDB attributes and net FDI flows into Kenya’s manufacturing sector. The EDB attributes that were assessed relate to bureaucracy, access to credit, political risk and trade liberalization. The Ownership – Location – Internalization (OLI) Theory was the theoretical foundation of this study. A positivist research philosophy was adopted, and a descriptive correlational research design was applied to data from the year 2012 – 2019. The correlation analysis revealed that that there was a significant positive association between access to credit and net inflow of FDI into Kenya’s manufacturing sector. On the other hand, political risk, trade liberalization and bureaucracy all had significant negative associations with net inflow of FDI into Kenya’s manufacturing sector. The study therefore recommends that the Government of Kenya continue with its efforts in reducing bureaucratic processes and procedures as well as curbing political risk and perceptions thereof. The study further proposes that the Government of Kenya consider providing competitive funding to firms that aim to internationalize their manufacturing operations in Kenya while creating a conducive environment for international firms to operate from Kenya by offering competitive terms in comparison to other members of the East African Community (EAC) who attract manufacturing firms into their economies.