Foreign Direct Investment and Export Performance of Kenyan Manufacturing Firms

Kenya - 30 November 2012

Foreign direct investment is believed to promote exports of host countries by augmenting domestic capital for exports, helping transfer technology and new products for exports. It also facilitates access to new and large foreign markets, provides training for the local workforce and thereby upgrading technical and management skills. In the Kenyan context little is know on the role of FDI in the export orientation of firms. How doe FDI impact on the export propensity and intensity of Kenyan firms? This study examines the export propensity and intensity of Kenyan manufacturing firms using a panel of firms from 1993-2002. Using a probit model, the results show a significantly positive effect of FDI on firms’ propensity to export. The random effect results finds no significant impact of FDI on how much firms export, but shows that firm size is an important factor in export intensity. The results clearly show that FDI is very relevant in influencing export propensity. The findings have important policy implications in terms of promoting initiatives to encourage FDI inflows into the country.
Keywords: Exports, Export Propensity, Export Intensity, total factor productivity, foreign direct investment, multinational firms, probit estimation, Kenya.