Foreign direct investment and reduction of the poverty: Essay on the review of the literature

Abstract

As regards several developing countries, particularly those which face the deficit of structural growth, foreign direct investment (FDI) is currently considered as a means of economic growth and development. FDI may bring positive benefits to the host economy in terms of the contribution to the growth of GDP, technology transfer, the enhancement of the human capital, the stimulation of domestic investment, and the promotion of exports, to name but a few. In fact, all these elements, as it were, work in favor of decreasing poverty and improving the welfare of the population of the host countries.

The aim of this work is to endeavor to reexamine the theoretical and empirical literature related to the debate of the role of FDI to decrease poverty in developing countries. Within the frame of a liberal approach, we are going to proceed with a theoretical exploration of the links and mechanisms of transmission between FDI and the decrease of poverty on the one hand, and the elaboration of a review of empirical studies conducted to assess the effect of FDI on lowering poverty and the improvement of welfare in the host countries, on the other hand.

Our results analysis displays that there is a positive link between FDI and the decrease of poverty via the stimulation of the determining factors of economic growth.