The Impact of Foreign Direct Investment on Poverty Reduction an Applied Study on the Egyptian Economy
Poverty problem is not only inadequate income, but it could be a reflection of hunger, no shelter, sickness, malnutrition, illiteracy, school dropout, unemployment, unserviceable water, powerlessness, crimes, and insecurity. Poverty rates will be higher without applying all possible economic reforms that sustain economic development, modernization, income growth, and employment. By considering foreign direct investment as a tool of the economic reforms, it's important to answer one main question; to what extent does FDI affect poverty reduction? This empirical study aims to examine the relationship between FDI inflows and poverty reduction in the Egyptian Economy. The time-series data covers the period 1990–2020. This study used ordinary least squares (OLS) technique to find the correlation between FDI inflows and poverty reduction. The study uses the principal components analysis (PCA) to construct a poverty reduction index by using five proxies namely GDP per capita, individuals using internet, primary education pupils, household final consumption expenditure, and life expectancy ratio to cover multidimensional features of poverty and to increase the robustness of the results due to lack of time-series data on the poverty variable. Results show that FDI has a statistically significant positive impact on poverty reduction in the Egyptian economy.