DOES FDI REDUCE POVERTY IN AFRICA AND

ARE THERE REGIONAL DIFFERENCES?By G. Gohou and I. Soumare

By Gaston GOHOU, PhDCESS Instittute Quebec, Canada

Second Congress of African Economists

Abidjan. Côte d’Ivoire

November 24-26, 2011

1. Motivation

2. Research questions

3. Empirical analysis and results

4. Conclusion

Outline

Apparent linkage between FDI and welfare …

1. MotivationAfrica: huge development gap FDI FDI Reduce poverty

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?

Regression model specification

• Eq 1:

• Eq 2:

–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.

variablesControlWelfare FDI

variablesControlDummyWelfarejREC FDIj

Empirical analysis & results

Africa map and regions

RECs in Africa

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?

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.

At the regional level, the impact of FDI on welfare is no longer obvious and differs across regions.

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

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 pro-poor sectors (agriculture, infrastructure,…)

FDI can contribute to countries development and poverty reduction in Africa,