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Research: FDI and Poverty Reduction

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Published: Friday 18 March 2011 00:00

A research paper on the impact of FDI on poverty reduction in African regions, written by Dr. Gaston GOHOU (CEO of CESS Institute) and Prof. Issouf SOUMARE (Professor & Director of the Laboratory for Financial Engineering of Laval University), has been accepted for publication in World Development.

DOES FOREIGN DIRECT INVESTMENT REDUCE POVERTY IN AFRICA AND ARE THERE REGIONAL DIFFERENCES?

Gaston GOHOU, Ph.D. (CESS Institute)

and

Issouf SOUMARÉ, Ph.D. (Laval University)

ABSTRACT

This paper reexamines the relationship between FDI inflows and welfare (or poverty reduction) in Africa. Using FDI net inflows per capita and the UNDP’s HDI as the principal variables, our analyses confirm the positive and strongly significant relationship between FDI net inflows and poverty reduction in Africa but finds significant differences among African regions. We also find that FDI has more impact on welfare in poorer than in richer countries. For instance, while the relationship between FDI and poverty reduction is positive and significant for economic communities in Central and East Africa, it is non-significant in Northern and Southern Africa and is ambiguous in West Africa. Our results are robust to many model specifications.