Investigating the impact of foreign direct investment on poverty reduction efforts in Africa

Abstract

The study explored whether the complementarity between foreign direct investment (FDI) and natural resources availability led to poverty reduction in Southern and Western African nations using panel data analysis (fixed effects, random effects, pooled ordinary least squares (OLS) and dynamic generalised methods of moments (GMM) with data spanning from 2002 to 2012. The objective emanates from the theoretical view that if the countries that are receiving FDI have abundance of natural resources, a large number of the unemployed people are likely to get jobs, earn income and get out of poverty zone. Three measures of poverty were used in the current study, namely life expectancy at birth, total (years), household consumption expenditure as a ratio of gross national product and mortality rate and infant (per 1 000 live births). Generally, all the four panel data analysis methods produced similar finding: the interaction between FDI and natural resources reduced poverty levels in African countries studied. Southern and Western African nations are therefore urged to implement FDI enhancement policies which attract foreign investors into the natural resources extraction sector if they want to sustainably reduce poverty. Future studies should investigate other macroeconomic factors that must be available in the host country before FDI reduce poverty in all its forms.