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Poverty Reduction In India:The Role of Foreign Direct Investment


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1 Department of Commerce, Delhi School of Economics, Delhi University, New Delhi, India
     

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Developing economies like India, China, and various African nations have increasingly been looking at foreign direct investment (FDI) flows as a source of economic growth, raising per capita income, reducing unemployment, and thus finally alleviating poverty. However, the positive impact of such openness remains a matter of debate. Hence, this paper aims to ascertain whether FDI flows play a role in reducing depth as well as intensity of poverty using time series data spanning from 1981-2012 for India. The regression analysis reveals that increased FDI inflows are associated with a lower poverty count, in both the measures that are Headcount Poverty as well as Poverty Gap. In the second model of (OLS), agricultural incomes seem to elevate households out of poverty but fail to bridge the divide between the incomes of the people below poverty line and the average incomes. Thus, the study suggests that bringing more FDI flows is no perfect recipe for alleviating poverty, but it can have a positive impact on poverty reduction, provided that desired mechanisms are in place in the host country to have these positive effects.

Keywords

Economic Growth, Exports, FDI, Poverty, Inequality.
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  • Poverty Reduction In India:The Role of Foreign Direct Investment

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Authors

Komal
Department of Commerce, Delhi School of Economics, Delhi University, New Delhi, India
Madan Lal
Department of Commerce, Delhi School of Economics, Delhi University, New Delhi, India

Abstract


Developing economies like India, China, and various African nations have increasingly been looking at foreign direct investment (FDI) flows as a source of economic growth, raising per capita income, reducing unemployment, and thus finally alleviating poverty. However, the positive impact of such openness remains a matter of debate. Hence, this paper aims to ascertain whether FDI flows play a role in reducing depth as well as intensity of poverty using time series data spanning from 1981-2012 for India. The regression analysis reveals that increased FDI inflows are associated with a lower poverty count, in both the measures that are Headcount Poverty as well as Poverty Gap. In the second model of (OLS), agricultural incomes seem to elevate households out of poverty but fail to bridge the divide between the incomes of the people below poverty line and the average incomes. Thus, the study suggests that bringing more FDI flows is no perfect recipe for alleviating poverty, but it can have a positive impact on poverty reduction, provided that desired mechanisms are in place in the host country to have these positive effects.

Keywords


Economic Growth, Exports, FDI, Poverty, Inequality.

References





DOI: https://doi.org/10.17492/focus.v6i1.182828