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

Research that has studied the relationship between Foreign Direct Investment (FDI) and economic development using FDI and growth variables has shown mixed results. There is an extensive stream of research that argues that FDI effects can be unpredictable, unintended, and counterproductive, or even threatening (Mengistu, 2009). Conversely, other scholars show a strong, positive, and engaged stance with matters to do with development (Meyer, 2004).Although the literature on the effect of FDI on economic growth is abundant, literature on the effect of FDI on poverty is insufficient.

This is because the factors determining poverty in the Sub-Saharan African region are not homogeneous and have not been identified properly. Due to this, it has not been able to study the effect of FDI on these factors. This paper thus examines the relationship between inward FDI and poverty alleviation in Sub-Saharan Africa (SSA). Using the United Nations Development Program’s Human Development Index (HDI) and FDI net inflows as a percentage of Gross Domestic Product (GDP) as the primary variables, the analysis will confirm the positive and expectantly strong significant relationship between FDI net inflows and poverty reduction in SSA; a move towards achieving the eight Millennium Development Goals (MDGs) for 2015 outlined by The United Nations’ Millennium Declaration in 2000.

Poverty is a persistent problem in Sub-Saharan African countries. In order to carry out a study on the incidence of poverty and the ways to alleviate the problem, it is imperative to understand the way the term ‘poverty is redefined and the bearing it has on the people that are classified as poor. There are various ways in which poverty has been defined by different around the world. In general, the individuals that are identified as poor are “those people living in households in the lowest income quintile, when households are ranked by three-year average total per capita income” (Adams and He, 1995).

Two basic versions are generally used for the measurement of poverty in different countries. These are the poverty thresholds and the poverty guidelines. The Census Bureau issues the former and this measure is used for making statistical analysis of data related to poverty. The latter is issued by the Department of Health and Human Services.