DOES FDI ACTUALLY AFFECT INCOME INEQUALITY? INSIGHTS FROM 25 YEARS OF RESEARCH

Kaixing Huang (), Nicholas Sim and Hong Zhao

Journal of Economic Surveys, 2020, vol. 34, issue 3, 630-659

Abstract: While there are 25 years of empirical research on how FDI may affect income inequality, there is surprisingly no consensus on this issue. In this paper, we conduct a meta‐analysis on the effect of FDI on inequality using 543 empirical studies from 1995 to 2019. Among various factors, we find that the development level of the study country has the strongest influence on the direction in which FDI affects income inequality. When the primary studies are sorted into three groups based on the GDP per capita of their sample areas, the within‐group estimates on the effect of FDI on income inequality become strongly consistent with each other. Particularly, we find that FDI is associated with higher inequality for the low‐income group, has no statistically significant effect for the middle‐income group, and is associated with lower inequality for the high‐income group. This observation suggests that FDI may increase income inequality as a country initially develops, but reduce inequality as development deepens.

Date: 2020
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