Foreign direct investment and inequality in developing countries: Does sector matter?

Scholars have studied the relationship between inward foreign direct investment (FDI) and within‐country income inequality in cross‐national contexts, but have not empirically investigated how FDI in different sectors might affect inequality in different ways. We use error correction models to analyze sectoral FDI data compiled from UNCTAD investment reports in 60 middle‐income countries from 1989 to 2010, arguing that FDI in services is more likely to be associated with inequality than FDI in other sectors. We argue that skill biases and changes in employment patterns associated with service sector investments can help explain these findings.     

Global corporations and local politics: income redistribution vs. FDI subsidies

Income inequality has been used empirically to explain the mixed performance of developing countries in attracting FDI. This paper sets up a theoretical model that links the skewness of the income distribution to a host government's willingness to subsidize FDI. Large skewness makes government subsidies less likely because the median income person prefers redistribution. Little skewness, however, does not guarantee FDI. In addition, host governments may switch from positive to no subsidies if a shift in economic variables changes how the policymaker trades off the FDI benefits and income redistribution, thereby offering an alternative to the conventional hold-up story.     

In search of FDI-led growth in developing countries: The way forward

This paper challenges the widespread belief that FDI generally has a positive impact on economic growth in developing countries. It addresses the limitations of the existing literature and re-examines the FDI-led growth hypothesis for 28 developing countries using cointegration techniques on a country-by-country basis. The paper finds that in the vast majority of countries, there exists neither a long-term nor a short-term effect of FDI on growth; in fact, there is not a single country where a positive unidirectional long-term effect from FDI to GDP is found. Furthermore, our results indicate that there is no clear association between the growth impact of FDI and the level of per capita income, the level of education, the degree of openness and the level of financial market development in developing countries.     

Capital Flows, Vertical Multinationals, Wage Inequality, and Welfare

Wage inequality between skilled and unskilled labor in the US and its trading partners, Mexico and Chile, has increased since 1980, while Taiwan's wage inequality has decreased since the mid‐1980s. The authors provide a new explanation for the latter, involving a rise in capital flows from Taiwan to less‐developed countries (LDCs) in the form of vertical multinationals (MNEs), and a corresponding rise in intermediate‐good exports from the MNEs to subsidiaries in LDCs. Moreover, national income in both countries definitely improves.     

Foreign direct investment,economic freedom and economic growth: International evidence

In this paper, we investigate the systemic link between economic freedom, foreign direct investment (FDI) and economic growth in a panel of 85 countries. Our empirical results, based on the generalized method-of-moment system estimator, reveal that FDI by itself has no direct (positive) effect on output growth. Instead, the effect of FDI is contingent on the level of economic freedom in the host countries. This means the countries promote greater freedom of economic activities gain significantly from the presence of multinational corporations (MNCs).     

Can social spending cushion the inequality effect of globalization?

This paper examines whether social spending cushions the effect of globalization on within‐country inequality. Using information on disposable and market income inequality and data on overall social spending, and health and education spending from the ILO and the World Bank/WHO, we analyze whether social spending moderates the association between economic globalization and inequality. The results confirm that economic globalization—especially economic flows—associates with higher income inequality, an effect driven by non‐OECD countries. Health spending is strongly associated with lower inequality, but we find no robust evidence that any kind of social spending negatively moderates the association between economic globalization and inequality.     

International migration,foreign direct investment,and development stage in developing economies

The existing empirical results on the relationship between FDI and migration are rather mixed. This study reevaluates, both theoretically and empirically, how inward FDI relates to emigration in developing countries. Our model illustrates that the relationship between inward FDI and emigration flows depends on the development stage of a developing country, that is, there is a positive association between inward FDI and emigration flows for relatively less‐developed countries but a negative association between these two variables for relatively developed countries. We confirm the empirical validity of our model prediction using the panel data of 21 OECD and 51 non‐OECD countries during the period from 2003 to 2012. Our results argue that as economic development proceeds in a developing country, the home effect of inward FDI associated with intensified labor demand would dominate the linkage effect that induces the brain drain problem through enhancing the socioeconomic ties with migrant networks.     

STRUCTURAL CHANGES AND THE DISTRIBUTION OF INCOME BY SIZE: THE CASE OF INDIA

The interrelation between changes in the economic structure, i.e., industrial distribution of income and labor force, and the size distribution of income is studied in this paper in a case study of India (1951–1960).
The change in the size distribution of income is the sum of changes due to (1) inter-sectoral factors and (2) intra-sectoral factors. The need for this distinction is emphasized by the result obtained for India, that 85% of the changes in the size distribution may be assigned to inter-sectoral factors, and only 15% to intra-sectoral factors. Since the inter-sectoral factors are significantly influenced by changes in the industrial distribution of income and labor force, our result points out a relation between economic growth and the size distribution which quite often is overlooked in studies of the size distribution.
The results obtained in this paper support several cross-section results of Professor Kuznets. In particular some of these are: (a) inter-sectoral inequality in the economic structure widened with economic growth, (b) the inequality in the size distribution of India widened, (c) the level of inequality in India is higher than in any of the eight developed countries considered.     

Microeconomic consequences and macroeconomic causes of foreign direct investment in southern African economies

The authors use a new data set on firms in 13 countries of the Southern African Development Community (SADC) and comparators from other regions to identify the benefits and determinants of FDI in this region. Foreign Direct Investment (FDI) has facilitated local development in the SADC. Foreign-owned firms perform better than domestic firms, are larger, and locate in richer and better-governed countries and in countries with more competitive financial intermediaries. They are also more likely to export than domestic firms and evidence suggests that they might have positive spillover effects on domestic firms. Based on a standard empirical model, the SADC is attracting the inward FDI per capita that the region's level of income would predict. But this means that there are less capital inflows per capita to the region than there are to wealthier parts of the developing world. Moreover, the SADC is attracting less FDI than comparators for reasons that are possibly more fundamental than current income, namely, countries’ past growth record, demographic structure and the quality of physical infrastructure. Interestingly, inward FDI is less sensitive to variation in income within the SADC than in other parts of the world, but is more responsive to changes in country's openness to trade.     

ICT and income inequality: a cross-national perspective

The importance of information and communications technology (ICT) for economic growth and development is widely researched and seemingly well understood, but the effect of such investments on income inequality is less well documented. On the one hand, improvements in infrastructure are expected to expand economic opportunities for previously underserved populations. On the other hand, ICT growth may exacerbate inequality due to differential access and skill premiums. We use panel data from 109 countries during the period 2001–2014 to examine the empirical connection between ICT and income inequality in a cross-national context. Our results suggest that the effect of ICT on income inequality depends both on the specific type of ICT and on the measure of income inequality. In addition, the magnitude of ICT’s effect on income inequality is comparable to that of more traditional forms of economic infrastructure. Finally, we find that the association between ICT and income inequality is conditional on other economic and political characteristics.     

我国收入差距与经济增长的面板协整与因果关系研究

笔者运用最近发展起来的面板协整技术,分析了我国收入差距与经济增长的关系。研究结果表明,全国以及东中西部的收入差距与经济增长之间存在长期的稳定关系;尽管对于全国和东部地区,收入差距和经济增长的因果关系并不明显,但对于中部和西部,收入差距和经济增长之间存在长期和短期的因果关系。     

Do channels of financial integration matter for FDI’s impact on growth? Empirical evidence using a panel

This paper adds to the debate on the relationship between foreign direct investment (FDI) and economic growth which suggest that the link between FDI and economic growth is rather the consequence of both FDI and growth responding endogenously to economic integration. We investigate if the impact of FDI on growth is dependent on the channel of integration used to attract FDI. We use four different indexes of economic integration including Trade Openness, Chinn-Ito, and KOF and our newly constructed index of financial integration. We employ these four indexes to investigate the role played by economic integration in linking FDI and growth. We use a panel consisting of 134 developing countries and data spanning the period 1989-2017 estimated using the generalized method of moments (GMM) technique. The results show that FDI is an important determinant of growth. The results also suggest that at least some of the integration variables do matter and work as channels to attract FDI leading to growth. However, after stratifying countries by income level, we also find that integration matters mainly for high income countries. Integration variables for other income groups do not show much significance. These are interesting results and may have important policy implications.     

Population increase,economic growth,educational inequality,and income distribution: some recent evidence

The relationship between population increase, economic growth, education and income inequality was examined in a cross-section study based on data from 26 developing and 2 developed countries. As other studies have noted, high population growth is associated with a less equal income distribution. A 1 percentage point reduction in the rate of population growth tends to raise the income share of the poorest 80% in the less developed world by almost 5 percentage points and is associated with a 1.7 percentage point increase in the income share of the poorest 40%. The relationship between short-run income growth and equality, on the other hand, is strong and positive. Estimates suggest that a 1 percentage point increase in the short-run rate of growth of the gross domestic product (GDP) increases the income share of the bottom 80% by about 2 percentage points and that of the poorest 40% by almost 1 percentage point. Although higher mean schooling appears to be a mild equalizer, educational inequality does not appear to have an adverse effect on income distribution. Overall, these results challenge the widely held belief that there must be a growth-equity trade-off. Moreover, they suggest that the impact of educational inequality on income distribution may be different from that observed in earlier studies, implying a need for caution in using these earlier results as a basis for educational policy development.     

An Analysis of the Corporate Income Tax Policy of Less Developed Countries

Unlike in developed countries, corporate rather than personal tax is the greater source of public finance for less developed countries (LDCs). This paper analyzes the corporate income tax policy for a large panel of LDCs. The analysis shows that although the corporate tax rate has been decreasing, corporate tax revenues have been increasing. Contrary to standard tax competition theory, there is also strong evidence that corporate income taxes are increasing with respect to the LDCs’ openness, as measured by capital mobility. The analysis also shows that the corporate tax rate is increasing with respect to the personal tax rate, as income‐shifting theory predicts.     

In search of thresholds in the household income inequality–growth relationship

This paper investigates the shape of the relationship between household income inequality and economic growth. More precisely we search for the existence of threshold values in this relationship by employing a dynamic panel smooth transition regression model to account for potential endogeneity problems. We find that there do exist threshold values (that are different for different groups of countries): below the threshold, household income inequality is growth enhancing, while above the threshold, inequality has a negative or no effect on economic growth.     

How Does Globalization Affect Income Inequality? A Panel Data Analysis

One of the major issues on the state of income inequality is the effect of globalization through foreign direct investment (FDI). It is well known that FDI inflows create employment opportunities for unskilled labor intensive countries. Hence, during recessionary (expansionary) periods, FDI outflows should cause an increase in a developing (developed) country’s unemployment rate, worsening income inequality. This study differs from the previous literature by employing the key variables FDI, trade volume, and GINI coefficient for a panel of three groups of countries (developed, developing, and miracle countries). We estimated panel cointegration coefficients via FM-OLS. Our results show that the effects of trade liberalization and FDI on income distribution differ for different country groups.     

国际直接投资与开放型内生经济增长

本文应用内生经济增长理论框架 ,着重就国际直接投资 (FDI)对高收入国家、中收入国家和低收入国家三种不同类型国家经济增长的影响进行理论和实证分析 ,认为FDI能内生技术溢出和技术进步 ,从而成为内生经济增长的重要源泉。本文对 65个样本国家的实证研究结果表明 ,FDI流入增长对高收入的发达国家经济增长作用比对中低收入发展中国家作用更明显。但FDI流入增长对我国经济增长和全要素生产率增长具有明显促进作用 ,其原因与FDI流入规模和我国的人力资本水平有关     

Privatization, strategic foreign direct investment and host-country welfare

Recent evidence shows that developing countries and transition economies are increasingly privatizing their public firms and at the same time experiencing rapid growth of inward foreign direct investment (FDI). We show that there is a two-way causality between privatization and greenfield FDI. Privatization increases the incentive for FDI, which, in turn, increases the incentive for privatization compared to the situation of no FDI. The optimal degree of privatization depends on the cost difference of the firms, and on the foreign firm's mode of entry.