The importance of industrial policy, institutions and FDI in industrialisation is one of the most widely debated issues in the economic discourse. As a contribution to the debate, this paper examines the importance of industrial policy and institutions in Kenya’s industrial development. The paper also examines FDI focusing on positive spillovers, capability development and performance. FDI had a positive role on industrial development through spillover benefits. Nevertheless, the paper argues that FDI’s role in industrialisation can be enhanced by stimulating a strong science, technology and innovation culture. Although institutions established portrayed a positive impact, they were severely constrained in terms of operational capacity making them inefficient. It is therefore recommended that the government continues to provide support to such institutions in earnest to particularly enhance their capacity such as co-ordination, finance and human capital. Lastly, consistent and carefully formulated industrial policies are advocated for as they allow firms long term planning horizons.
Key words: FDI, institutions, spillovers, industrial policy, industrialisation and Kenya.
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