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Does foreign investment reduce poverty? Empirical evidence from Tanzania

Mercy Magombeyi and Nicholas Odhiambo ()

No 22562, Working Papers from University of South Africa, Department of Economics

Abstract: This paper investigates the direct impact of foreign direct investment (FDI) inflows on poverty reductionin Tanzania between 1980 and 2014. The paper attempts to answer one critical question: Does FDI reducepoverty in Tanzania? The study employs three poverty reduction proxies, namely, household consumptionexpenditure (Pov1), infant mortality rate (Pov2), and life expectancy (Pov3). The three poverty reductionproxies have been selected based on the need to capture poverty in its multidimensional nature. Using theautoregressive distributed lag (ARDL) bounds testing approach, the study finds that FDI has a short-runpositive impact on poverty reduction when infant mortality rate is used as a proxy for poverty reduction.However, when infant mortality rate and life expectancy are used as poverty reduction proxies, FDI has noimpact on poverty reduction. This applies irrespective of whether the analysis is conducted in the short runor in the long run. The study, therefore, concludes that the impact of FDI on poverty reduction is sensitiveto the proxy used to measure the level of poverty reduction, and varies over time.

Keywords: Tanzania; Poverty Reduction; Foreign Direct Investment; Household Consumption Expenditure; Infant Mortality Rate; Life Expectancy (search for similar items in EconPapers)
Date: 2017-05
New Economics Papers: this item is included in nep-afr and nep-int
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