Determining the Impact of Terrorism on Foreign Direct Investment in Kenya

This paper assessed the relationship between terrorism and foreign direct investment in Kenya. Secondary data on the Terrorism attacks and FDI from 2010 to 2012 was used for the study. Multiple regression model was used to test of the relationship between the study variables. By applying the model, the study found that terrorism negatively affects FDI in Kenya. It was concluded that Terrorism activities negatively affect the FDI in Kenya. Terrorism activities decrease the foreign investor confidence which decrease the FDI. As such, the study further concluded that if one investor experiences an attack, other investors suffer from a negative spillover effect as they shy away from investing in that economy. The study finally concluded that political stability is critical determinant of FDI. Where there are numerous terrorism activities, investors will tend to shy away from investing in such economies. The Null hypothesis that there is no relationship between terrorism and FDI was thus rejected.

These findings are in line with the findings of a study presented at the Eight Young Economists Seminar (2013) where they found that on average, if FDI host country increases the number of terrorist attacks towards investor by one standard deviation, there is a decrease in the flow of investment by 14 percent of the average FDI share in a host's GDP. The findings also revealed that that. Finally, the study revealed that that in the last 16 years by the time of the study perceived political stability is the most important factor for FDI. The findings are also supported by Shahbaz et al. [1] study examining the relationship between terrorism and foreign direct investment where they found that due to increase in the number of terrorist attacks, foreign investors showed negative interest to invest money in Pakistan.