Do foreign MNEs alleviate multidimensional poverty in developing countries?

Abstract

This study investigates the effects of the investment-based presence of multinational enterprises (MNEs) on poverty in developing countries. The relationship is decomposed into different pathways corresponding to various facets of firms’ presence and activities, and monetary and multidimensional poverty. We hypothesize that depending on the pathways, the effects can be positive or negative in terms of poverty alleviation, and an overall conclusion has to be nuanced. The hypotheses are tested across 431 Indonesian administrative districts, observed in 2008, 2014 and 2018. Pooled instrumental variable regressions show that a higher presence of foreign MNEs does not reduce the number of people below the poverty line. It raises the depth and severity of poverty, and the population is also more exposed to pollutions. These results inform the ongoing debate, and offer important implications for policy makers eager to attract foreign direct investments, as well as for MNEs’ managers concerned with social responsibility and achieving sustainable development goals in host developing countries.