_____________________________________________________________________________________________________ *Corresponding author: E-mail: mutukucmm@gmail.com; British Journal of Economics, Management & Trade 6(2): 161-171, 2015, Article no.BJEMT.2015.051 ISSN: 2278-098X SCIENCEDOMAIN international www.sciencedomain.org Foreign Direct Inflows and Economic Growth Nexus in Kenya: Co-integration and Causality Analysis Mutuku Cyrus 1* and Koech Elias 2 1 Kenya Institute for Public Policy Research and Analysis Macroeconomics Division, Nairobi, Kenya. 2 Department of Accounting and Finance, Mt Kenya University, Kenya. Authors’ contributions This work was carried out in collaboration between both authors. Both authors read and approved the final manuscript. Article Information DOI: 10.9734/BJEMT/2015/8612 Editor(s): (1) LI, Hui, School of Economics and Management, Zhejiang Normal University, China. (2) John M. Polimeni, Faculty of Economics, Albany College of Pharmacy & Health Sciences, New York, USA. Reviewers: (1) Hassan, Olanrewaju Makinde, Dept. Of Business Administration, Kogi State University, Kogi State, Nigeria. (2) Anonymous, Georgia Regents University, USA. (3) Anonymous, Mzumbe University, Tanzania. (4) Anonymous, Malawi. Complete Peer review History: http://www.sciencedomain.org/review-history.php?iid=812&id=20&aid=7417 Received 22 nd December 2013 Accepted 18 th November 2014 Published 17 th December 2014 ABSTRACT The study focused on the co-integration and causality analysis between FDI and GDP for Kenya using annual data spanning 1970 t0 2013. It was established that though the two variables are I(1), they are co-integrated. The VECM framework revealed that FDI has a significant influences GDP both in the long run and short run. A unidirectional causality was established from FDI to GDP, while impulse response functions revealed that a shock in any of the two variables significantly affects each other for a period of one year. The study concludes that FDI enhancing policies would be necessary for economic growth in Kenya. Keywords: FDI inflows; economic growth; multivariate granger causality; VAR; VECM. Policy Article