Determinants of foreign direct investments in developing countries: evidence from Kenya and Nigeria
Mithamo, Magdalene Muthoni
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Foreign direct investment has a direct relationship with technological change, public policy and level of economic activity. However, in some countries with unfavorable conditions such as high levels of corruption and diseases; foreign direct investment thrives despite this. This study investigates the determinants of foreign direct investment in developing economies using the cases of Kenya and Nigeria. The reason for the choice of these two countries is because of their odd foreign direct investment trends. The purpose of the study is not only to investigate the determinants of foreign direct investment in both countries, but to also enable the comparison of the determinants. The different methodology employed include: the use of the Vector Autoregressive model, Impulse response functions, Granger causality, Variance Decomposition, and the Ordinary Least Squares regression. The period of study is from 1970 to 2014 with the dependent variable being foreign direct investment and the independent variables being: growth in Gross Domestic Product, Exchange rate, inflation, Balance of Trade, growth in exports and trade openness. The findings of the study were that the most significant determinants of foreign direct investment in Kenya were exports and trade openness while in Nigeria the most significant variables were found to be inflation and trade openness as well.