FOREIGN CAPITAL FLOWS AND ECONOMIC GROWTH IN KENYA

Economic growth of any nation is key to that economic as it contributes significantly to the development and wellbeing of that economy. These major benefits are dependent on many factors including foreign capital flows that need to be addressed through the management of the country’s fiscal policies. Ideally, a country's economic development is anticipated to enhance living standards by providing education, healthcare access, infrastructure, housing, quality food supply, improved roads, and similar amenities. However, this is not always the case. Economic growth of Kenya has recently attracted attention due to widespread erratic volatility in its growth despite huge increase in foreign capital flows. Therefore, the resolve of this research is to ascertain the effect of foreign capital flows on economic growth in Kenya. In particular, the research explored the effect of foreign debt on economic growth of Kenya. The research was underpinned on the Keynesian theory and Wagner’s Law. The correlational explanatory research approach was used in the study. The target audience was Kenya as a country which is also the unit of analysis. Secondary data, was acquired with the aid of documentary guides and data sheets from World Bank, CBK and KNBS. Diagnostic tests (Auto correlation, multicollinearity, heteroscedasticity, normality, co-integration and unit root test) was carried out before data analysis. Multiple linear time series regression model was adopted. Descriptive statistics, including frequencies, mean, and standard deviation, along with inferential statistics such as Pearson correlation and regression analysis, was employed in data analysis and displayed in frequency distribution tables, charts, and graphs. The research suggested that foreign debt, when analyzed, had a statistically significant bearing on the economic growth in Kenya with p-value of 0.000. As a result, these hypothesis was rejected at 5% significance level. The report recommended that the Kenyan government should aim to lower its budget deficit to GDP ratio to an average of 4 percent prior to 2030. The fiscal policy has inadequately responded to rising debt levels, thereby jeopardizing the Government's pursuit of fiscal debt sustainability. Consequently, the National Assembly ought to enact a fiscal law establishing a maximum threshold for the fiscal deficit to GDP ratio that the National Treasury cannot surpass at any time, aligning with the long-term debt strategy to prevent the public debt to GDP ratio from escalating uncontrollably. Keywords: Foreign Capital Flows, Foreign Direct Investment, Remittances, Foreign Portfolio Investment, Foreign Debt and Economic Growth.