Foreign Direct Investment, External Debts, and Poverty Reduction in Sub-Saharan African Countries

Poverty has been one of the major setbacks to the overall social and economic development. The study examines the link between foreign direct investment (FDI), external debt, and the reduction in poverty in 30 Sub-Saharan African countries from 2006 to 2020. This research study used Principal Component Analysis (PCA) vis-à-vis panel unit root/stationarity test, correlation analysis/multi-collinearity test, Hauman test, Two-Step GMM estimation, Arellano-Bond, Wald test, and post estimation test for the analysis. The descriptive statistics indicate a statistically significant variability in economic indicators with non-normal distributions showing the multifaceted economic settings of the SSA, utilizing secondary data available from WDI (2023). The result of the Generalized Method of Moments (GMM) estimator indicates FDI, showing that poverty has a statistically negatively insignificant impact on poverty reduction in SSA. These benefits could depend on institutional quality, absorptive capacity, and sectoral allocation. The result on the external debt also indicates significant positive effects on poverty, whereas the interaction between FDI and external debt (EXT) shows a negative and weak correlation. This suggests heavy reliance on both FDI and external debts and could hinder the speed of poverty reduction. The lagged dependent variable confirms the tough persistence reduction in poverty. Outcomes of the result on trade openness and inflation revealed a significant positive effect on poverty reduction, while government size, though, but showing negatively significant effect in eradicating poverty in the regions. Thus, suggest the need for policymakers in SSA countries to adequately manage their external financing, while promoting inclusive trade and optimized public spending to ensure growth trans-forms into reasonable poverty reduction.