Foreign direct investment and poverty in Uganda: what is the relationship?

Abstract

Purpose This paper investigates the relationship between foreign direct investment (FDI) and poverty in Uganda.

Design/methodology/approach Using annual time series data from 1983 to 2021, we use the autoregressive distributed lag bounds testing method to cointegration for test the above relationship. Considering the multidimensionality of poverty, we proxy poverty by three proxies: household consumption expenditure, infant mortality rate and life expectancy.

Findings The findings reveal that FDI is important for poverty reduction in both the long- and short-run when using household consumption and infant mortality rate, holding other factors constant. This relationship is robust to alternative specifications and estimation methods. This paper establishes that FDI does matter for poverty reduction in both the short and long run. However, when life expectancy is used to proxy poverty, results show a positive relationship between FDI and poverty.

Originality/value The long-run relationship between FDI and poverty largely suggests that tackling poverty may require reforming the economic environment by addressing bottlenecks that hinder economic growth, which is a key component in poverty reduction. Thus, it is important to ensure that government expenditure is directed to the productive sectors of the economy, such as education and infrastructure, among others that are paramount in expanding the productive capacity of the economy, which in turn is crucial for poverty reduction.