Journal of Economics and Development Studies

Foreign Direct Investment Spill over’s on Domestic Firms: a Case of Kenya’s Domestic Firms
Dr. Charles Ndegwa Mugendi (PhD), Dr. Stephen Gitahi Njuru (PhD)

Abstract
Many developing countries, Kenya included have instituted many measures in order to attract more foreign direct investment (FDI). These measures sometimes have been at the expense of domestic firms. This is done with is a general belief that FDI has direct and indirect benefits to the economy. It is believed that foreign firms act as a catalyst in the development of local firms through positive spillovers effects. This may be through increased efficiency due to competition from foreign firms, imitation of technology, upgrading of local suppliers through technical assistance and transfer of knowledge from foreign to domestic firms. But drawing on the vast technical and managerial resource of its parent, a foreign firm may crowd out domestic investment. By borrowing locally it may also deprive domestic firms the main source of capital. In addition, foreign firms may take over domestic firm’s best employees by offering high wages and this reduces efficiency which eventually decreases the productivity of the domestic firms. Therefore the study empirically evaluates if domestic firms have benefitted from foreign firms in Kenya. Primary data was collected from three main cities Nairobi, Kisumu and Mombasa. Panel of three years between 2011 to 2014, was used and FGLS method of analyses was employed. It was evident that domestic firms benefited from foreign firms through both horizontal and vertical spillovers. Other variable that affected productivity also included, technological gap, research and development and level of skills.

Full Text: PDF     DOI: 10.15640/jeds.v4n4a5