Does foreign direct investment reduce poverty? The case of Latin America in the twenty-first century
Languages of publication
Over the last decades, foreign direct investment flows to Latin America have grown dramatically. Yet, there is no consensus on whether the region has actually benefited from such trend or not. Specifically, regarding the expected positive effect of foreign direct investment on poverty reduction, empirical evidence is scant and ambiguous. In this context, this paper examines the effect of foreign direct investment on Latin America’s poverty incidence. For doing so, a panel data analysis was conducted, considering 13 economies from the region during the 2000-2014 period. We found that FDI is not significantly associated with the reduction of poverty in Latin America, in contrast with macroeconomic stability, infrastructure, human capital development and financial development which are significantly associated with the reduction of poverty in the region.
- Agosin, M. R., & Machado, R. (2005). Foreign investment in developing countries: Does it crowd in domestic investment? Oxford Development Studies, 33(2), 149-162. https://doi.org/10.1080/13600810500137749
- Alvarado, R., Iñiguez, M., & Ponce, P. (2017). Foreign direct investment and economic growth in Latin America. Economic Analysis and Policy, 56, 176-187. https://doi.org/https://doi.org/10.1016/j.eap.2017.09.006
- Baltagi, B. (2005). Econometric analysis of panel data (3rd ed.). John Wiley & Sons, Ltd.
- Barrios, S., Dimelis, S., Louri, H., & Strobl, E. (2004). Efficiency spillovers from foreign direct investment in the EU periphery: A comparative study of Greece, Ireland, and Spain. Review of World Economics, 140(4), 688-705. https://doi.org/10.1007/BF02659620
- Basu, P., & Guariglia, A. (2007). Foreign direct investment, inequality, and growth. Journal of Macroeconomics, 29(4), 824-839.
- Bharadwaj, A. (2014). Reviving the globalization and poverty debate: Effects of real and financial integration on the developing world. Advances in Economics and Business, 2(1), 42-57. https://doi.org/10.13189/aeb.2014.020107
- Calvo, C., & Hernandez, M. (2006). Foreign direct investment and poverty in Latin America. Paper Delivered at the Globalisation and Economic Policy Fifth Annual Postgraduate Conference. University of Nottingham.
- Chang, H. J. (2004). Regulation of foreign investment in historical perspective. European Journal of Development Research, 16(3), 687-715. https://doi.org/10.1080/0957881042000266660
- Cypher, J. M., & Dietz, J. L. (2009). The process of economic development. Routledge.
- De Mello, L. (2012). Foreign direct investment in developing countries and growth : A selective survey. Journal of Development Studies, 34(1), 1-34. https://doi.org/10.1080/00220389708422501
- Economic Commission for Latin America and the Caribbean (ECLAC). (2017). La Inversión Extranjera Directa en América Latina y el Caribe. Santiago de Chile.
- Foster, J., & Szekely, M. (2008). Is economic growth good for the poor? Tracking low income using general means. International Economic Review, 49(4), 1143-1172. https://doi.org/10.1111/j.1468-2354.2008.00509.x
- Fowowe, B., & Shuaibu, M. I. (2014). Is foreign direct investment good for the poor? New evidence from African countries. Economic Change and Restructuring, 47(4), 321-339. https://doi.org/10.1007/s10644-014-9152-4
- Gereffi, G., & Evans, P. (1981). Transnational corporations, dependent development, and state policy in the semiperiphery: A comparison of Brazil and Mexico. Latin American Research Review, 16(3), 31-64.
- Gohou, G., & Soumaré, I. (2012). Does Foreign Direct Investment Reduce Poverty in Africa and are There Regional Differences? World Development, 40(1), 75-95. https://doi.org/10.1016/j.worlddev.2011.05.014
- Hermes, N., & Lensink, R. (2003). Foreign direct investment, financial development and economic growth. Journal of Development Studies, 40(1), 142-163. https://doi.org/10.1080/00220380412331293707
- Herzer, D., Hühne, P., & Nunnenkamp, P. (2014). FDI and income inequality-Evidence from Latin American economies. Review of Development Economics, 18(4), 778-793. https://doi.org/10.1111/rode.12118
- Hoechle, D. (2007). Robust standard errors for panel regressions with cross-sectional dependence. Stata Journal, 7(3), 281-312. https://doi.org/The Stata Journal
- Huang, C.-H., Teng, K.-F., & Tsai, P.-L. (2010). Inward and outward foreign direct investment and poverty: East Asia vs. Latin America. Review of World Economics, 146(4), 763-779.
- Jalilian, H., & Weiss, J. (2012). Foreign direct investment and poverty in the ASEAN region. ASEAN Economic Bulletin, 19(3), 231-253.
- Lall, S., Albaladejo, M., & Moreira, M. M. (2004). Latin American industrial competitiveness and the challenge of globalization. Buenos Aires: IDB-INTAL.
- Lessmann, C. (2013). Foreign direct investment and regional inequality: A panel data analysis. China Economic Review, 24(1), 129-149. https://doi.org/10.1016/j.chieco.2012.12.001
- Lipsey, R. E., & Sjöholm, F. (2005). The impact of inward FDI on host countries: why such different answers? In E. Graham, T. Moran, & M. Blomström (Eds.), Does Foreign Direct Investment Promote Development (pp. 23-43). Washington D.C.: Peterson Institute for International Economics.
- Mortimore, M., & Vergara, S. (2004). Targeting winners: Can foreign direct investment policy help developing countries industrialise? The European Journal of Development Research, 16(3), 499-530. https://doi.org/10.1080/0957881042000266606
- Nunnenkamp, P. (2004). To what extent can foreign direct investment help achieve international development goals? The World Economy, 27(5), 657-677.
- Nunnenkamp, P., Schweickert, R., & Wiebelt, M. (2007). Distributional effects of FDI: How the interaction of FDI and economic policy affects poor households in Bolivia. Development Policy Review, 25(4), 429-450. https://doi.org/10.1111/j.1467-7679.2007.00379.x
- Ozturk, I. (2007). Foreign direct investment - growth nexus: A review of the recent literature. International Journal of Applied Econometrics and Quantitative Studies, 4(2), 79-98.
- Petras, J., & Veltmeyer, H. (2013). Imperialism and capitalism in the twenty-first century: a system in crisis. Ashgate Publishing.
- Reiter, S. L., & Steensma, H. K. (2010). Human development and foreign direct investment in developing countries: The influence of FDI policy and corruption. World Development, 38(12), 1678-1691. https://doi.org/10.1016/j.worlddev.2010.04.005
- Sarisoy, I., & Koc, S. (2012). The effect of foreign direct investment on poverty : Panel regression analysis for 40 selected underdeveloped and developing countries. Çukurova Üniversitesi Sosyal Bilimler Enstitüsü Dergisi, 21(3), 225-240.
- Schaffer, M., & Stillman, S. (2016). XTOVERID: Stata module to calculate tests of overidentifying restrictions after xtreg, xtivreg, xtivreg2, xthtaylor. Retrieved from https://econpapers.repec.org/RePEc:boc:bocode:s456779
- Spencer, J. W. (2008). The impact of multinational enterprise strategy on indigenous enterprises: Horizontal spillovers and crowding out in developing countries. Academy of Management Review, 33(2), 341-361. https://doi.org/10.5465/amr.2008.31193230
- UNCTAD. (2017). World Investment Report 2017 - Investment and the Digital Economy. United Nations Publications. Retrieved from http://unctad.org/en/PublicationChapters/wir2017ch3_en.pdf
- World Bank. (2018). World Development Indicators
Publication order reference