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Be Nice to Thy Neighbors: Spatial Impact of Foreign Direct Investment on Poverty in Africa

Author

Listed:
  • Sodiq Arogundade

    (College of Business and Economics, Auckland Park Kingsway Campus, University of Johannesburg, P.O. Box 524, Auckland Park, Johannesburg 9020, South Africa)

  • Mduduzi Biyase

    (College of Business and Economics, Auckland Park Kingsway Campus, University of Johannesburg, P.O. Box 524, Auckland Park, Johannesburg 9020, South Africa)

  • Santos Bila

    (College of Business and Economics, Auckland Park Kingsway Campus, University of Johannesburg, P.O. Box 524, Auckland Park, Johannesburg 9020, South Africa)

Abstract

This study examines the spatial impact of FDI on the poverty of 44 African countries. In achieving this, the study uses the Driscoll–Kraay fixed effect instrumental variable regression, the instrumental variable generalized method of moments estimator (IV-GMM), and the spatial Durbin model. The empirical investigation of this study yielded four significant findings: (1) neighboring countries’ FDIs have a positive and significant impact on the incidence and intensity of the host country’s poverty, (2) improved institutional quality in neighboring countries has a significant impact on the FDI–poverty reduction nexus of the host country, (3) the empirical results lend support for a significant spatial spillover of poverty in the region, (4) the marginal effect results indicate that countries within the region are no longer in isolation or independent, i.e., the level of poverty in a particular country is influenced by its determinants in the neighboring country. This result is robust to the alternative proximity matrix, which is the inverse distance. Since there is spatial interdependence among African countries, we recommend that African governments, through the African Union (AU), should not only champion the institutional reform in the region, but also establish a binding mechanism to ensure reform implementation.

Suggested Citation

  • Sodiq Arogundade & Mduduzi Biyase & Santos Bila, 2022. "Be Nice to Thy Neighbors: Spatial Impact of Foreign Direct Investment on Poverty in Africa," Economies, MDPI, vol. 10(6), pages 1-20, June.
    • Handle: RePEc:gam:jecomi:v:10:y:2022:i:6:p:128-:d:829799
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    1. Bosede Ngozi Adeleye & Sodiq Arogundade & Biyase Mduduzi, 2023. "Empirical Analysis of Inclusive Growth, Information and Communication Technology Adoption, and Institutional Quality," Economies, MDPI, vol. 11(4), pages 1-21, April.

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