The Impact of Foreign Direct Investment (FDI) on the Relationship Between Energy Consumption and Gross Domestic Product (GDP) in Kenya

The consumption of energy plays a pivotal role in the economic growth globally. In a developing economy such as Kenya, where there are still policy frameworks under development, it is important to understand this relationship between the consumption of energy and growth in the economy with foreign direct investment being a moderating variable. This paper considers 5 variables – foreign direct investment (FDI), gross domestic product (GDP), petroleum energy consumption (PEC), electricity energy consumption (EEC), and renewable energy consumption (REC).
The data used is secondary for Kenya for the period 2002 to 2021 and quantitative research design is then utilized. Quarterly statistics are obtained from the Kenya National Bureau of Statistics (KNBS). This being a macro economic study, secondary data is more suitable and reliable. The Vector Error Correction Model (VECM) is used to test the short-run and long-run relationships of these variables. The results conclude that there is a short-run bidirectional relationship between FDI & EEC and between FDI & REC. This means that the Kenyan Government needs to boost the consumption of electricity, petroleum, and renewable energy in order to attract foreign direct investments into the country. Renewable energy has not been taken up well in Kenya. This study shows how renewable energy contributes to growth of the Kenyan economy with the assistance of foreign direct investment. For future research, there is need to incorporate the carbon emissions as climate change is now a major issue globally.