Impact of Foreign Direct Investment Volatility on Economic Growth in Kenya: EGARCH Analysis

Kirwa Lelei Ngeny; Cyrus Mutuku

doi:doi:10.11648/j.eco.20140304.11

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Impact of Foreign Direct Investment Volatility on Economic Growth in Kenya: EGARCH Analysis

Kirwa Lelei Ngeny, Cyrus Mutuku

Published in Economics (Volume 3, Issue 4)

Received: 20 November 2014 Accepted: 4 December 2014 Published: 17 December 2014

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Abstract

This study investigated the impact foreign direct investment volatility on growth in Kenya using time series data spanning 1970 to 2011. An endogenous growth model was estimated using the ordinary least squares to determine the relationship between the FDI volatility and economic growth. Bounds testing approach was employed to show that FDI volatility retards long-run economic growth in Kenya. Results suggest that FDI has a positive effect on growth whereas FDI volatility has a negative impact on growth. Notably, trade openness is not FDI inducing, thus affecting growth negatively. However, human capital endowment has a positive impact on growth. Although the overall effect of Foreign Direct Investment on economic growth is positive the volatility of capital flows may make it harder for the stable and predictable macroeconomic policies to be followed. Therefore, unstable inflows may dampen investment, hence affecting economic growth.

Published in	Economics (Volume 3, Issue 4)
DOI	10.11648/j.eco.20140304.11
Page(s)	50-61
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2014. Published by Science Publishing Group

Keywords

Gross Domestic Product, Foreign Direct Investment Volatility, Arch, ARDL, EGARCH

References

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APA Style

Kirwa Lelei Ngeny, Cyrus Mutuku. (2014). Impact of Foreign Direct Investment Volatility on Economic Growth in Kenya: EGARCH Analysis. Economics, 3(4), 50-61. https://doi.org/10.11648/j.eco.20140304.11

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ACS Style

Kirwa Lelei Ngeny; Cyrus Mutuku. Impact of Foreign Direct Investment Volatility on Economic Growth in Kenya: EGARCH Analysis. Economics. 2014, 3(4), 50-61. doi: 10.11648/j.eco.20140304.11

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AMA Style

Kirwa Lelei Ngeny, Cyrus Mutuku. Impact of Foreign Direct Investment Volatility on Economic Growth in Kenya: EGARCH Analysis. Economics. 2014;3(4):50-61. doi: 10.11648/j.eco.20140304.11

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@article{10.11648/j.eco.20140304.11,
  author = {Kirwa Lelei Ngeny and Cyrus Mutuku},
  title = {Impact of Foreign Direct Investment Volatility on Economic Growth in Kenya: EGARCH Analysis},
  journal = {Economics},
  volume = {3},
  number = {4},
  pages = {50-61},
  doi = {10.11648/j.eco.20140304.11},
  url = {https://doi.org/10.11648/j.eco.20140304.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20140304.11},
  abstract = {This study investigated the impact foreign direct investment volatility on growth in Kenya using time series data spanning 1970 to 2011. An endogenous growth model was estimated using the ordinary least squares to determine the relationship between the FDI volatility and economic growth. Bounds testing approach was employed to show that FDI volatility retards long-run economic growth in Kenya. Results suggest that FDI has a positive effect on growth whereas FDI volatility has a negative impact on growth. Notably, trade openness is not FDI inducing, thus affecting growth negatively. However, human capital endowment has a positive impact on growth. Although the overall effect of Foreign Direct Investment on economic growth is positive the volatility of capital flows may make it harder for the stable and predictable macroeconomic policies to be followed. Therefore, unstable inflows may dampen investment, hence affecting economic growth.},
 year = {2014}
}

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TY  - JOUR
T1  - Impact of Foreign Direct Investment Volatility on Economic Growth in Kenya: EGARCH Analysis
AU  - Kirwa Lelei Ngeny
AU  - Cyrus Mutuku
Y1  - 2014/12/17
PY  - 2014
N1  - https://doi.org/10.11648/j.eco.20140304.11
DO  - 10.11648/j.eco.20140304.11
T2  - Economics
JF  - Economics
JO  - Economics
SP  - 50
EP  - 61
PB  - Science Publishing Group
SN  - 2376-6603
UR  - https://doi.org/10.11648/j.eco.20140304.11
AB  - This study investigated the impact foreign direct investment volatility on growth in Kenya using time series data spanning 1970 to 2011. An endogenous growth model was estimated using the ordinary least squares to determine the relationship between the FDI volatility and economic growth. Bounds testing approach was employed to show that FDI volatility retards long-run economic growth in Kenya. Results suggest that FDI has a positive effect on growth whereas FDI volatility has a negative impact on growth. Notably, trade openness is not FDI inducing, thus affecting growth negatively. However, human capital endowment has a positive impact on growth. Although the overall effect of Foreign Direct Investment on economic growth is positive the volatility of capital flows may make it harder for the stable and predictable macroeconomic policies to be followed. Therefore, unstable inflows may dampen investment, hence affecting economic growth.
VL  - 3
IS  - 4
ER  -

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Author Information

Kirwa Lelei Ngeny

Macroeconomics Division, Kippra, Nairobi, Kenya
Cyrus Mutuku

Macroeconomics Division, Kippra, Nairobi, Kenya

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APA Style

Kirwa Lelei Ngeny, Cyrus Mutuku. (2014). Impact of Foreign Direct Investment Volatility on Economic Growth in Kenya: EGARCH Analysis. Economics, 3(4), 50-61. https://doi.org/10.11648/j.eco.20140304.11

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ACS Style

Kirwa Lelei Ngeny; Cyrus Mutuku. Impact of Foreign Direct Investment Volatility on Economic Growth in Kenya: EGARCH Analysis. Economics. 2014, 3(4), 50-61. doi: 10.11648/j.eco.20140304.11

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AMA Style

Kirwa Lelei Ngeny, Cyrus Mutuku. Impact of Foreign Direct Investment Volatility on Economic Growth in Kenya: EGARCH Analysis. Economics. 2014;3(4):50-61. doi: 10.11648/j.eco.20140304.11

Copy | Download

@article{10.11648/j.eco.20140304.11,
  author = {Kirwa Lelei Ngeny and Cyrus Mutuku},
  title = {Impact of Foreign Direct Investment Volatility on Economic Growth in Kenya: EGARCH Analysis},
  journal = {Economics},
  volume = {3},
  number = {4},
  pages = {50-61},
  doi = {10.11648/j.eco.20140304.11},
  url = {https://doi.org/10.11648/j.eco.20140304.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20140304.11},
  abstract = {This study investigated the impact foreign direct investment volatility on growth in Kenya using time series data spanning 1970 to 2011. An endogenous growth model was estimated using the ordinary least squares to determine the relationship between the FDI volatility and economic growth. Bounds testing approach was employed to show that FDI volatility retards long-run economic growth in Kenya. Results suggest that FDI has a positive effect on growth whereas FDI volatility has a negative impact on growth. Notably, trade openness is not FDI inducing, thus affecting growth negatively. However, human capital endowment has a positive impact on growth. Although the overall effect of Foreign Direct Investment on economic growth is positive the volatility of capital flows may make it harder for the stable and predictable macroeconomic policies to be followed. Therefore, unstable inflows may dampen investment, hence affecting economic growth.},
 year = {2014}
}

Copy | Download

TY  - JOUR
T1  - Impact of Foreign Direct Investment Volatility on Economic Growth in Kenya: EGARCH Analysis
AU  - Kirwa Lelei Ngeny
AU  - Cyrus Mutuku
Y1  - 2014/12/17
PY  - 2014
N1  - https://doi.org/10.11648/j.eco.20140304.11
DO  - 10.11648/j.eco.20140304.11
T2  - Economics
JF  - Economics
JO  - Economics
SP  - 50
EP  - 61
PB  - Science Publishing Group
SN  - 2376-6603
UR  - https://doi.org/10.11648/j.eco.20140304.11
AB  - This study investigated the impact foreign direct investment volatility on growth in Kenya using time series data spanning 1970 to 2011. An endogenous growth model was estimated using the ordinary least squares to determine the relationship between the FDI volatility and economic growth. Bounds testing approach was employed to show that FDI volatility retards long-run economic growth in Kenya. Results suggest that FDI has a positive effect on growth whereas FDI volatility has a negative impact on growth. Notably, trade openness is not FDI inducing, thus affecting growth negatively. However, human capital endowment has a positive impact on growth. Although the overall effect of Foreign Direct Investment on economic growth is positive the volatility of capital flows may make it harder for the stable and predictable macroeconomic policies to be followed. Therefore, unstable inflows may dampen investment, hence affecting economic growth.
VL  - 3
IS  - 4
ER  -

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