Impact of foreign direct investment on poverty reduction in Botswana: An ARDL approach

Abstract

This study investigates the dynamic impact of foreign direct investment inflows (FDI) on poverty reduction in Botswana from 1980 to 2014. The study employs the newly developed autoregressive distributed lag bounds test approach to cointegration and the error correction model to investigate the impact of FDI on poverty reduction. Unlike some studies that have relied on one poverty reduction proxy, this study uses three poverty reduction proxies, which are household consumption expenditure (Pov1), infant mortality rate (Pov2), and life expectancy (Pov3). The results from this study vary depending on the poverty reduction proxy used. FDI has a negative impact on poverty reduction in both the long run and the short run when Pov3 is used as a poverty reduction measure, while an insignificant relationship was revealed in both the long run and the short run when Pov2 is used as a proxy for poverty reduction. FDI has a negative statistically significant impact on poverty reduction in the short run and an insignificant impact on poverty reduction in the long run when Pov1 is used as a measure of poverty reduction. Past poverty reduction has a positive impact on current poverty reduction irrespective of the poverty reduction proxy used.