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Foreign direct investment and income inequality: Does institutional quality matter?

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  • Cong Minh Huynh

Abstract

This research examines the impacts of FDI inflows, institutional quality (IQ) and their interaction on income inequality in 36 Asian countries over the period 2000–2018. Results demonstrate that FDI exacerbates income inequality, and the improvement in IQ from FDI diminishes this detrimental impact until a threshold of IQ, then beyond that FDI reduces income inequality. Meanwhile, institutional quality reduces income inequality, and this beneficial effect is intensified with the rising FDI inflows. Notably, IQ moderates the impact of FDI on income inequality through the internal mechanism of government effectiveness, control of corruption, political stability and absence of violence/terrorism, and rule of law.

Suggested Citation

  • Cong Minh Huynh, 2021. "Foreign direct investment and income inequality: Does institutional quality matter?," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 30(8), pages 1231-1243, November.
    • Handle: RePEc:taf:jitecd:v:30:y:2021:i:8:p:1231-1243
    DOI: 10.1080/09638199.2021.1942164
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    Cited by:

    1. Cong Minh Huynh & Nam Hoai Tran, 2023. "Financial development, income inequality, and institutional quality: A multi-dimensional analysis," Cogent Economics & Finance, Taylor & Francis Journals, vol. 11(2), pages 2242128-224, June.
    2. Toyo A. M. Dossou & Emmanuelle N. Kambaye & Mesfin W. Berhe & Simplice A. Asongu, 2023. "Moderating effect of ICT on the relationship between governance quality and income inequality in sub-Saharan Africa," Working Papers 23/021, European Xtramile Centre of African Studies (EXCAS).
    3. Hui Wang & Xin Zhong, 2023. "An Empirical Study on the Impact of Chinese OFDI on the Global Value Chain Positions of Countries Along the Belt and Road and Threshold Effects," SAGE Open, , vol. 13(1), pages 21582440231, February.
    4. Zafar Ullah Khan & Alam Khan & Dilawar Khan & Róbert Magda, 2023. "The Impact of Institutional Quality on Sectoral Foreign Direct Investment in Pakistan: A Dynamic Simulated ARDL Approach," Sustainability, MDPI, vol. 15(9), pages 1-16, April.
    5. Toyo Amègnonna Marcel Dossou & Emmanuelle Ndomandji Kambaye & Mesfin Welderufael Berhe & Simplice A. Asongu, 2022. "Does E-governance reduce income inequality in sub-Saharan Africa? Evidence from a dynamic panel," Working Papers of the African Governance and Development Institute. 22/066, African Governance and Development Institute..
    6. Huynh, Cong Minh & Le, Quoc Nha, 2022. "A multi-dimensional free market and income inequality in developing Asia: How does the quality of governance matter?," MPRA Paper 112013, University Library of Munich, Germany.
    7. Sanjoy Kumar Saha, 2022. "How Does the Impact of Foreign Direct Investment on Labor Productivity Affects Productive Capacity?," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 12(4), pages 101-135.
    8. Tran, Viet Nhu Anh & Huynh, Cong Minh, 2022. "The impact of foreign direct investment on financial development in Asian countries," MPRA Paper 114311, University Library of Munich, Germany.
    9. Masca, Simona-Gabriela & Chis, Diana-Maria, 2023. "Distributional implications of informal economy in the EU countries: Accounting for the spread of tax evasion benefits and cultural characteristics," Socio-Economic Planning Sciences, Elsevier, vol. 87(PB).

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