Foreign direct investment and the triangle of growth, inequality and poverty in north Africa

Abstract

This study examines the impact of foreign direct investment (FDI) on poverty in North Africa over the period 1995–2023. It distinguishes between two potentially conflicting effects of FDI on poverty: the growth effect and the inequality effect. The first part of the article provides a theoretical analysis of the relationships linking foreign direct investment to the “growth–inequality–poverty” triangle. The second part is empirical in nature. Using a simultaneous-equations econometric model applied to an unbalanced panel dataset, the study captures the interactions between FDI and the triangle as documented in the existing literature. The results indicate that FDI has a negative effect on inequality and a positive, though relatively modest, effect on economic growth. However, according to the model’s estimates, FDI has not had a statistically significant impact on poverty levels in North Africa.