Foreign Direct Investment and Income Inequality revisited

Hans-Rimbert Hemmer, Ralf Krüger and Jennifer Seith

No 32, Discussion Papers in Development Economics from Justus Liebig University Giessen, Institute for Development Economics

Abstract: * This paper discusses the impact of FDI on income inequality. * The theoretical ways in which FDI might influence income inequality between countries as well as within a given country are discussed, with special attention also given to employment generation effects. * Revisiting previous research we show that significant effects of FDI are hard to find in more recent work, with older studies showing mixed results. * Re-estimating the prominent study of Tsai (1995) with newer data we augment it by allowing for FDI-influences on inequality by region, income level, and export focus. * We find no overall impact of FDI on inequality. Also region and income differentiated estimations show no country group-specific impacts of FDI. Only in the export focusdifferentiated estimations we find some evidence of an inequality increasing impact of FDI in countries primarily exporting primary goods (without fuel). * FDI thus do not have significant implications for income distribution in general.

Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:jluide:32

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