An Analysis of Changes in Wealth Distribution upon the Entrance of Foreign Direct Investment Firms
AbstractThis paper investigates the role of foreign direct investment (FDI) firms with respect to various economic aspects in developing countries, such as the determination of wealth distribution and the entry and exit of entrepreneurs. The model used in this paper is based on the theoretical framework developed in Matsuyama (2011). Unlike the original model focusing on a closed economy, this paper will introduce the arrival of FDI firms as a new actual foreign factor. It is shown that the FDI firms can possibly have various negative effects. More specifically, the following somewhat interesting results are obtained. First, the paper is the first to describe how the entrance of FDI firms can effect both wealth equality and inequality. This entrance can cause equality by acting as either a "big push" to push all the poorer members of society out of the poverty trap so that all domestic agents may become more equal with respect to wealth distribution and more free with respect to job selection. Conversely, it could lead to an "underdevelopment trap" whereby all domestic agents have no other choice than to work for FDI firms. On the other hand, the entrance of FDI firms may also cause inequality by widening the gap between rich and poor. The cost of starting a new business, the bequest motive and the world interest rate play critical roles in the determination of the effects of FDI-firm entry. Second, entry and exit of entrepreneurs is also analyzed under profitability and borrowing constraints and its relation to equality is also discussed.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Graduate School of Economics, Hitotsubashi University in its series Discussion Papers with number 2013-09.
Length: 19 p.
Date of creation: Sep 2013
Date of revision:
foreign direct investment; wealth distribution; entry and exit of entrepreneurs;
Find related papers by 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
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-02 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Emmanuel Ammissah & Spiros Bougheas & Rod Falvey, .
"Financial Constraints, the Distribution of Wealth and International Trade,"
10/17, University of Nottingham, GEP.
- Emmanuel Amissah & Spiros Bougheas & Rod Falvey, 2011. "Financial Constraints, the Distribution of Wealth and International Trade," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 34, pages 707-724, 05.
- Emmanuel Amissah & Spiros Bougheas & Rod Falvey, . "Financial Constraints, the Distribution of Wealth and International Trade," Discussion Papers 10/06, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
- Mary Hallward-Driemeier & Giuseppe Iarossi & Kenneth L. Sokoloff, 2002. "Exports and Manufacturing Productivity in East Asia: A Comparative Analysis with Firm-Level Data," NBER Working Papers 8894, National Bureau of Economic Research, Inc.
- Changkyu Choi, 2006. "Does foreign direct investment affect domestic income inequality?," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 13(12), pages 811-814.
- Gall, Thomas & Schiffbauer, Marc & Kubny, Julia, 2010.
"Dynamic Effects of Foreign Direct Investment When Credit Markets are Imperfect,"
Proceedings of the German Development Economics Conference, Hannover 2010, Verein fÃ¼r Socialpolitik, Research Committee Development Economics
5, Verein für Socialpolitik, Research Committee Development Economics.
- Thomas Gall & Marc Schiffbauer & Julia Kubny, 2009. "Dynamic Effects of Foreign Direct Investment When Credit Markets are Imperfect," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series, Boston University - Department of Economics dp-188, Boston University - Department of Economics.
- Kiminori Matsuyama, 2011. "Imperfect Credit Markets, Household Wealth Distribution, and Development," Annual Review of Economics, Annual Reviews, Annual Reviews, vol. 3(1), pages 339-362, 09.
- Basu, Parantap & Guariglia, Alessandra, 2007. "Foreign Direct Investment, inequality, and growth," Journal of Macroeconomics, Elsevier, Elsevier, vol. 29(4), pages 824-839, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Digital Resources Section, Hitotsubashi University Library).
If references are entirely missing, you can add them using this form.