DOES FDI REDUCE POVERTY IN AFRICA
AND
ARE THERE REGIONAL DIFFERENCES?
By G. Gohou and I. Soumare
Second Congress of African Economists
Abidjan. Côte d’Ivoire
November 24-26, 2011
By Gaston GOHOU, PhD
CESS Instittute Quebec, Canada
Outline
1. Motivation
2. Research questions
3. Empirical analysis and results
4. Conclusion
1. Motivation
Africa: huge development gap  FDI
FDI  Reduce poverty
Apparent linkage between FDI and welfare …
0.6
45
Weighted HDI
Per capita FDI
40
0.5
35
30
0.4
25
0.3
20
0.2
15
10
0.1
5
0
2007
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2007
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1990
0
Research questions
• Relationship between net FDI inflows and poverty
reduction in Africa and the impact of the Regional
Economic Communities (RECs)
• Specific research questions:
1. Does FDI contribute to poverty reduction in Africa?
2. Are there any regional differences on the role of FDI
on poverty reduction in Africa?
3. Are there any differences between Africa and other
World regions on the role of FDI on poverty
reduction?
Empirical analysis & results
Regression model specification
• Eq 1:
• Eq 2:
Welfare     FDI  Controlvariables
Welfare     j  FDI  DummyREC j  Controlvariables
– Welfare is measured by HDI (alternatively real per capital GDP),
– FDI is measured by per capita FDI (also use FDI/GDP or
FDI/GCF),
– Control variables:
• Economic and policy variables,
• Business environment and institutional quality variables,
• Political risks variables.
RECs in Africa
Africa map and regions
Q1: Does FDI contribute to poverty
reduction?
Strong positive relationship between FDI and
welfare at the aggregate Africa level,
Even after introducing economic & policy,
business environment & institutional quality, &
political risks control variables
Q2: Are there any regional differences in
Africa on the role of FDI on poverty
reduction?
At the regional level, the impact of FDI on welfare is
no longer obvious and differs across regions.
Central and East Africa RECs: FDI impacts
positively and significantly welfare
South and North Africa RECs: impact of FDI on
welfare is non significant
West Africa RECs: impact of FDI on welfare is
ambiguous.
Q3: Are there any differences between
Africa and 3 out-of-Africa regions on
the role of FDI on poverty reduction?
Comparison of Africa and ASEAN, Latin America and
Europe transitional economies, shows that, unlike
Africa, FDI does not have a positive significant
impact on welfare in these 3 out-of-Africa RECs.
Conclusion
FDI can contribute to countries development
and poverty reduction in Africa,
2 policy recommendations:
– Policies to attract FDI should be tailored on a
regional basis and account for economic
convergence within regions and differences
between regions in order to be effective
– FDI should be labor-intensive and targets propoor sectors (agriculture, infrastructure,…)