To What Extent Does Inward Foreign Direct Investment Alleviate Poverty in Sub Saharan Africa - Essay Example

Although SSA has relatively poor economic conditions, FDI inflows have significantly risen from $5 billion to $18 billion in the year 1995 to 2005 respectively (World Bank, 2003, p.92). The FDI inflows have played significant roles in the SSA economy because it has contributed to increased world trade, which has also contributed major changes including increases in employment opportunities and economic growth. This is relevant as they are among the key determinants for poverty alleviation in the SSA economy.

Many Sub-Saharan countries including Angola, Uganda, Niger and Botswana, among others, have significantly benefited from FDI inflows - many of these countries have increased their GDP per capita performance. Although poverty is still a major problem in most of the SSA countries, many of them have highly benefited from inward FDI flows; thus reducing poverty levels. Effects of Inward Foreign Direct Investment (FDI) In SSA Economy Positive Effects FDI flow has played a significant role in contributing to increased technology advancement, access to new technologies, the creation of new knowledge and the transfer of existing foreign technology (Asiedu, 2006, p. 65). One of the positive effects is the increased use of technology; which has enabled the developing nations to improve productivity and innovative commodities, which are in high demand in the global market.

It is less costly to learn to utilise existing technology than generating a new one; thus developing nations have the potential of growing at a faster rate. However, the convergence perspective is restricted on the level of human capital in the state. This is especially labour force quality, accumulated experience, knowledge and economic ability to create new ideas. Besides, progress in the education system and human capital is fundamental for adapting overseas technological know-how; thus generating sustainable long-run fiscal expansion.

The significant vehicle for international technology transfer is FDI; thus multinational companies undertake a significant part in controlling most of the global advanced technology. For instance, when a multinational company sets up a foreign affiliate, the associates receive some amount of proprietary technology. This may constitute the parent’s firm particular advantage, which enables the company to compete favourably with other local industries, which have superior knowledge of consumer preferences, local markets and business practices.

Therefore, this contributes to the geographical diffusion of technology; thus contributing to increased technological advancement. Secondly, FDI has contributed to increased domestic employment opportunities as a result of the development of new industries, which require labour to reach its maximum potential and goal. The construction of new companies in a country is believed to improve economic welfare and the living standards of people, through the creation of domestic employment opportunities. Many scholars have attempted to address the way FDI plays significant and key elements in the global economy.