The Effect of Trade and Foreign Direct Investment on Inequality: Do Governance and Macroeconomic Stability Matter?

Gerardo Ángeles Castro ()
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Gerardo Ángeles Castro: Profesor-investigador y jefe de la Sección de Estudios de Posgrado e Investigación, Escuela Superior de Economía (ESE), Instituto Politécnico Nacional (IPN). México, D.F. Mexico

Economía Mexicana NUEVA ÉPOCA, 2011, vol. XX, issue 1, 181-219

Abstract: Through dynamic panel data techniques and applying the estimated household income inequality data-set (Galbraith and Kum, 2003), this paper is aimed at exploring the effect of economic variables such as trade, foreign direct investment (FDI) and inflation on inequality, under different scenarios of domestic efficiency and over time. Trade benefits income distribution, whereas FDI and inflation increase inequality. The expansion of exports and employment based on the primary sector does not provide distributional effects, not even in low income countries. Those economies associated with macroeconomic stability and a high governance indicator can mitigate the adverse effect of FDI on income distribution, and enhance the benefits of trade. In the longer run, employment in industry, trade and in particular manufactured exports, can exert more distributional effects, while the adverse effect of FDI and inflation decreases.

Keywords: trade; foreign direct investment; inflation; inequality; good governance; panel data. (search for similar items in EconPapers)
JEL-codes: C23 F59 O15 P51 (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:emc:ecomex:v:20:y:2011:i:1:p:181-219

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