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Inward and Outward Foreign Direct Investment and Inequality: Evidence from a Group of Middle-Income Countries

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  • Chao-Hsi Huang

    (Department of Economics, National Tsing Hua University, Hsinchu, Taiwan)

  • Kai-Fang Teng

    (Department of Economics, National Tsing Hua University, Hsinchu, Taiwan2Taiwan Research Institute, Danshuei, Taipei, Taiwan)

  • Pan-Long Tsai

    (Department of Economics, National Tsing Hua University, Hsinchu, Taiwan)

Abstract

Using panel data of a group of 39 middle-income countries over 1981–2006, this paper examines how globalization in general and inward and outward FDI in particular affects inequality. Depending on geographical region and economic system, each component of globalization affects inequality in three groups of countries in different ways: open to inward FDI tends to affect income distribution adversely in transition economies and Latin American countries, but marginally improves income distribution in countries of the reference group. In contrast, open to outward FDI is positively associated with inequality in the reference group whereas negatively associated with that of the other two groups of countries. Crucially, improvement in human capital appears to be the single most reliable way to reduce inequality.

Suggested Citation

  • Chao-Hsi Huang & Kai-Fang Teng & Pan-Long Tsai, 2016. "Inward and Outward Foreign Direct Investment and Inequality: Evidence from a Group of Middle-Income Countries," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 16(3), pages 511-538, September.
    • Handle: RePEc:wsi:gejxxx:v:16:y:2016:i:03:n:gej-2015-0068
    DOI: 10.1515/GEJ-2015-0068
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    References listed on IDEAS

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    1. Anderson, Edward, 2005. "Openness and inequality in developing countries: A review of theory and recent evidence," World Development, Elsevier, vol. 33(7), pages 1045-1063, July.
    2. Bhandari, Bornali, 2007. "Effect of Inward Foreign Direct Investment on Income Inequality in Transition Countries," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 22, pages 888-928.
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    Cited by:

    1. Philipp Heimberger, 2019. "Beeinflusst die ökonomische Globalisierung die Einkommensungleichheit? Eine Meta-Analyse," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 45(4), pages 497-529.
    2. repec:agr:journl:v:1(618):y:2019:i:1(618):p:73-88 is not listed on IDEAS
    3. Philipp Heimberger, 2020. "Does economic globalisation affect income inequality? A meta‐analysis," The World Economy, Wiley Blackwell, vol. 43(11), pages 2960-2982, November.
    4. Kouassi YEBOUA, 2019. "Human capital and the FDI-Income inequality nexus in African countries: Panel smooth transition regression approach," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(618), S), pages 73-88, Spring.
    5. Joyce, Joseph, 2022. "The Impact of FDI Income on Income Inequality in Home Countries," MPRA Paper 114564, University Library of Munich, Germany.

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    More about this item

    Keywords

    globalization; foreign direct investment; income distribution; inequality;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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