Foreign Aid, Foreign Direct Investments and Economic Development in Kenya

Foreign aid in the years since independence has sometimes been more blessed to give than to receive, although greater discrimination is now apparent even to those who give. Throughout the developing world aid currently accounts for a big percent of revenues that countries tend to have. Foreign direct investment is a parameter for many countries as they are said to have assets abroad and foreigners tend to have assets locally. Foreign aid and foreign direct investment are looked at as having an influence on economic development. The study determined whether foreign aid and foreign direct investments impacts on economic development in Kenya. Data was collected from the Economic Surveys published by the National Bureau of Statistics for the years 2013 to 2025. Trend analysis was undertaken and graphs drawn to portray the patterns of the data and correlation matrix and regressions run to come up with regression results. Graphs portrayed consistent increase in GDP at market prices, volatile and fluctuating foreign aid and varying foreign direct investment. The association between foreign aid and economic development was negative, the association between foreign direct investment and economic development was direct, while the association between foreign aid and foreign direct investment was inverse. The regression results revealed that foreign aid significantly impacts on economic development, foreign direct investment doesnot significantly impact on economic development and that foreign aid significantly impacts on foreign direct investment but when combined together only foreign aid was found to significantly impact on economic development while foreign direct investment didnot significantly impact on economic development. Policy recognizes that economic development is essential and for countries that receive foreign aid and that undertake foreign direct investment policies that are formulated should be such that aspects such as foreign aid that appears to favourably impact on economic development should not be ignored. Pegging foreign aid to certain activities and regions and investing directly other than going through intermediaries might reduce financial impropriety and corruption as far as foreign aid is concerned. Conducive investment climate is also essential for countries to attract FDI as FDI plays an important role in the country’s capital formation and for the Multinationals which invest in the host country they create employment and open up capital markets for developing countries as they source part of their funds from international financial markets.