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FDI, local Financial Markets, Employment and poverty alleviation

  • Abdelaal Mahmoud, Ashraf

This paper examines the indirect linkages among foreign direct investment (henceforth, FDI) and poverty reduction, where so far there are few studies attempted to analyze empirically these linkages. Yet I have a question: do we believe that FDI inflows are able to contribute to higher growth and employment in poor countries? I argue yes. Behavior of FDI says something fundamental. FDI inflows vary across international borders and condition by host country environment; therefore, FDI can contribute to higher growth and employment in poor countries but only under certain circumstances, “Roll out the red carpet for foreign investors and they will come”. Countries with better financial systems, healthy business environment and human development are able to attract more FDI and exploit it more efficiently. Empirical analysis using panel data of 62 countries, from 1996 to 2007, shows that FDI appears regular to be a key source of employment and has a favorable impact on economic growth of low-income countries if interacted with monetary and non monetary variables.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 29717.

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Date of creation: 18 Mar 2010
Date of revision:
Handle: RePEc:pra:mprapa:29717
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  9. Nair-Reichert, Usha & Weinhold, Diana, 2001. " Causality Tests for Cross-Country Panels: A New Look at FDI and Economic Growth in Developing Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(2), pages 153-71, May.
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  16. Dutta, Nabamita & Roy, Sanjukta, 2008. "Foreign Direct Investment, Financial Development and Political Risks," MPRA Paper 10186, University Library of Munich, Germany, revised 05 Aug 2008.
  17. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
  18. Noorbakhsh, Farhad & Paloni, Alberto & Youssef, Ali, 2001. "Human Capital and FDI Inflows to Developing Countries: New Empirical Evidence," World Development, Elsevier, vol. 29(9), pages 1593-1610, September.
  19. Dehejia, Rajeev H. & Gatti, Roberta, 2002. "Child labor : the role of income variability and access to credit in a cross-section of countries," Policy Research Working Paper Series 2767, The World Bank.
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