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 WesternAfrican nations using panel data analysis (fixed effects, random effects, pooled ordinaryleast squares (OLS) and dynamic generalised methods of moments (GMM) with dataspanning from 2002 to 2012. The objective emanates from the theoretical view that if thecountries that are receiving FDI have abundance of natural resources, a large number ofthe 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 atbirth, total (years), household consumption expenditure as a ratio of gross nationalproduct and mortality rate and infant (per 1 000 live births). Generally, all the four paneldata analysis methods produced similar finding: the interaction between FDI and naturalresources reduced poverty levels in African countries studied. Southern and WesternAfrican nations are therefore urged to implement FDI enhancement policies which attractforeign investors into the natural resources extraction sector if they want to sustainablyreduce poverty. Future studies should investigate other macroeconomic factors that mustbe available in the host country before FDI reduce poverty in all its forms.