TECHNOLOGICAL SPILLOVERS FROM FOREIGN DIRECT INVESTMENT IN KENYA

Abstract

This study examines the role of foreign direct investment (FDI) inflow on technological innovation in Kenya. The result can help the government to formulate policies that attract FDI inflow to promote new technology, innovation, knowledge and financial capital inflow.  It uses the Autoregressive Distributed Lag (ARDL) estimation approach with time series data from 1980 to 2022 for Kenya. The results indicate that foreign direct investment and human capital lead to an increase in technological innovation over the long term. On the other hand, trade openness and economic growth are found to negatively impact technological innovation in the long run. Additionally, the result indicates that there is a causal relationship, in the Granger sense, between FDI inflow and technological innovation. The government should develop policies designated to create an environment conducive to attract foreign direct investment. The policies should focus on encouraging joint ventures and collaborations with local partners, industry specific incentives, investment promotions and tax incentives. FDI inflows bring advanced technologies, managerial know-how, and best practices, which can enhance the innovative capabilities and productivity of domestic firms.