Dynamic impact of fdi inflows on poverty reduction: Empirical evidence from South Africa

Abstract

This paper investigates the impact of foreign direct investment (FDI) and its sustainability in the reduction of poverty in South Africa from 1980 to 2014. The main objective of this paper is to examine the relationship between FDI and poverty reduction, which is important in formulating policies that can reduce the incidence of poverty in South Africa. To enhance the robustness of the results, three poverty-reduction proxies, namely: household consumption expenditure, the infant mortality rate, and life expectancy are used. Using autoregressive distributed lag approach (ARDL), the empirical findings of this study reveals that the impact of FDI on poverty reduction is sensitive to the poverty reduction proxy and the time under consideration, i.e., whether the analysis is conducted in the long run or in the short run. When infant mortality rate (Pov2) is used as a proxy for poverty reduction, FDI has a positive impact on poverty reduction in the long run and a negative impact on poverty reduction in the short run. However, when poverty reduction is proxied by household consumption expenditure and life expectancy, the study found no significant relationship between FDI and poverty reduction in South Africa − irrespective of whether the analysis is conducted in the short run or in the long run.