Do greenfield foreign direct investments contribute to poverty reduction and economic growth in Africa?

Abstract

Most literature on foreign direct investment (FDI) establishes that FDI is beneficial to the welfare and growth of host countries. While this might largely be true, the question is, does all types of FDI produce similar benefits? As a result, this study examines the impact of greenfield FDI on poverty reduction and sustainable economic growth in 46 African countries between the periods 2003–2020 using the system generalized method of moments (System GMM), the fixed and random effect methods. The study found that greenfield FDI promotes poverty reduction in low-income, lower-middle-income, and upper-middle-income countries in Africa; however, its impact on sustainable economic growth is mostly insignificant. Based on these findings, this study provides some policy implication. These include the commitment of the government to the development of basic and productive infrastructures to attract greenfield investment in Africa. Policymakers should also design investment promotion policies, tools and processes such as corporate tax incentives, reduction of information asymmetries, and lower investment and administrative costs. This will make it easier for multinational firms to establish their businesses and expand their operations thereby improving the welfare of the citizenry.