POLICY STABILITY OF TAX INCENTIVES AS A STRATEGIC DETERMINANT OF FOREIGN DIRECT INVESTMENT IN THE MANUFACTURING SECTOR, MACHAKOS COUNTY, KENYA

SULEIMAN NGONDI; JANE NJOROGE

doi:10.61426/rjssh.v7i1.537

SULEIMAN NGONDI Department of Public Policy and Administration, Kenyatta University, Kenya
JANE NJOROGE, PhD Department of Public Policy and Administration, Kenyatta University, Kenya

DOI: https://doi.org/10.61426/rjssh.v7i1.537

Keywords: Policy Stability of Tax Incentives, Foreign Direct Investment, Manufacturing Sector, Investor Confidence, Capital Inflows, Economic Growth

Abstract

Foreign direct investment (FDI) remains a critical driver of economic growth through capital inflows, industrial expansion, technology transfer, and employment creation. Despite the adoption of various tax incentive programs in Kenya, foreign direct investment inflows into the manufacturing sector have continued to exhibit fluctuations, raising concerns regarding the effectiveness and consistency of fiscal policy frameworks. This study examined the effect of policy stability of tax incentives on foreign direct investment in the manufacturing sector in Machakos County, Kenya. Specifically, the study focused on the influence of the frequency of tax policy changes, continuity of incentive implementation, and investor perceptions of policy credibility on foreign direct investment. The study was anchored on Institutional Theory and Dunning’s Eclectic Paradigm. A descriptive research design was adopted, integrating cross-sectional primary data and time-series secondary data. Primary data were collected using structured questionnaires administered to foreign-owned manufacturing firms operating in Machakos County, while secondary data were obtained from relevant government agencies. Data were analyzed using descriptive statistics, Pearson correlation analysis, and regression analysis with the aid of SPSS Version 26. The findings revealed that policy stability of tax incentives had a positive and statistically significant effect on foreign direct investment. Respondents strongly agreed that policy consistency, government commitment to incentive implementation, and credibility of fiscal policies significantly influenced investment decisions. Correlation analysis revealed the strongest positive association between policy stability and foreign direct investment, while regression analysis established policy stability of tax incentives as a significant predictor of foreign direct investment. The study concludes that stable and predictable tax incentive policies enhance investor confidence and contribute significantly to attracting and sustaining foreign investment within the manufacturing sector. The study recommends strengthening policy consistency, minimizing abrupt changes in tax incentive frameworks, and improving communication regarding fiscal policy reforms to enhance investor confidence and promote sustainable foreign direct investment.

Author Biographies

SULEIMAN NGONDI, Department of Public Policy and Administration, Kenyatta University, Kenya

Department of Public Policy and Administration, Kenyatta University, Kenya

JANE NJOROGE, PhD, Department of Public Policy and Administration, Kenyatta University, Kenya

Department of Public Policy and Administration, Kenyatta University, Kenya

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