Second Congress of African Economists CESS Instittute Quebec, Canada 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

Apparent linkage between FDI and welfare … 1. Motivation Africa: huge development gap  FDI FDI  Reduce poverty Apparent linkage between FDI and welfare …

Research questions Relationship between net FDI inflows and poverty reduction in Africa and the impact of the Regional Economic Communities (RECs) Specific research questions: Does FDI contribute to poverty reduction in Africa? Are there any regional differences on the role of FDI on poverty reduction in Africa? Are there any differences between Africa and other World regions on the role of FDI on poverty reduction?

Regression model specification Empirical analysis & results 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.

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 2 policy recommendations: 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 pro- poor sectors (agriculture, infrastructure,…)