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FDI and Income Inequality: Evidence from a Panel of US States

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  • Pandej Chintrakarn
  • Dierk Herzer
  • Peter Nunnenkamp

Abstract

This study employs state-level panel data to explore the relationship between inward foreign direct investment (FDI) and income inequality in the United States. Using panel cointegration techniques that allow for cross-sectional heterogeneity, cross-sectional dependence, and endogenous regressors, we find that the short-run effects of FDI on income inequality are insignificant or weakly significant and negative. In the long run, however, FDI exerts a significant and robust negative effect on income inequality in the United States. This result for the United States as a whole does not imply that FDI narrows income gaps in the long run in each individual state. There is considerable heterogeneity in the long-run effects of FDI on income inequality across states, with some states (21 out of 48 cases) exhibiting a positive relationship between FDI in income inequality

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1579.

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Length: 30 pages
Date of creation: Jan 2010
Date of revision:
Handle: RePEc:kie:kieliw:1579

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Keywords: FDI; Inequality; Panel Cointegration; United States;

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  1. Aitken, Brian & Harrison, Ann & Lipsey, Robert E., 1996. "Wages and foreign ownership A comparative study of Mexico, Venezuela, and the United States," Journal of International Economics, Elsevier, vol. 40(3-4), pages 345-371, May.
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  3. Bode, Eckhardt & Nunnenkamp, Peter, 2010. "Does Foreign Direct Investment Promote Regional Development in Developed Countries? A Markov Chain Approach for US States," Open Access Publications from Kiel Institute for the World Economy 40022, Kiel Institute for the World Economy (IfW).
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  6. Eckhardt Bode & Peter Nunnenkamp & Andreas Waldkirch, 2009. "Spatial Effects of Foreign Direct Investment in US States," Kiel Working Papers 1535, Kiel Institute for the World Economy.
  7. Robert C. Feenstra & Gordon H. Hanson, 1999. "The Impact Of Outsourcing And High-Technology Capital On Wages: Estimates For The United States, 1979-1990," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(3), pages 907-940, August.
  8. Jorg Breitung, 2005. "A Parametric approach to the Estimation of Cointegration Vectors in Panel Data," Econometric Reviews, Taylor & Francis Journals, Taylor & Francis Journals, vol. 24(2), pages 151-173.
  9. Zadia M. Feliciano & Robert E. Lipsey, 2006. "Foreign Ownership, Wages, And Wage Changes In U.S. Industries, 1987-92," Contemporary Economic Policy, Western Economic Association International, vol. 24(1), pages 74-91, 01.
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  12. Branstetter, Lee, 2006. "Is foreign direct investment a channel of knowledge spillovers? Evidence from Japan's FDI in the United States," Journal of International Economics, Elsevier, vol. 68(2), pages 325-344, March.
  13. Badi H. Baltagi & Chihwa Kao, 2000. "Nonstationary Panels, Cointegration in Panels and Dynamic Panels: A Survey," Center for Policy Research Working Papers, Center for Policy Research, Maxwell School, Syracuse University 16, Center for Policy Research, Maxwell School, Syracuse University.
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Cited by:
  1. Herzer, Dierk, 2009. "Cross-country heterogeneity and the trade-income relationship," Proceedings of the German Development Economics Conference, Frankfurt a.M. 2009 13, Verein für Socialpolitik, Research Committee Development Economics.
  2. Herzer, Dierk & Nunnenkamp, Peter, 2012. "The effect of foreign aid on income inequality: Evidence from panel cointegration," Structural Change and Economic Dynamics, Elsevier, vol. 23(3), pages 245-255.
  3. Rafal Kierzenkowski & Isabell Koske, 2012. "Less Income Inequality and More Growth – Are they Compatible? Part 8. The Drivers of Labour Income Inequality – A Literature Review," OECD Economics Department Working Papers 931, OECD Publishing.
  4. Dierk Herzer, Peter Nunnenkamp, 2012. "FDI and health in developed economies: a panel cointegration analysis," Kiel Working Papers 1756, Kiel Institute for the World Economy.
  5. Dierk Herzer & Philipp Hühne & Peter Nunnenkamp, 2012. "FDI and Income Inequality - Evidence from Latin American Economies," Kiel Working Papers 1791, Kiel Institute for the World Economy.
  6. Herzer, Dierk & Vollmer, Sebastian, 2013. "Rising top incomes do not raise the tide," Journal of Policy Modeling, Elsevier, Elsevier, vol. 35(4), pages 504-519.
  7. Dierk Herzer & Peter Nunnenkamp, 2013. "Inward and outward FDI and income inequality: evidence from Europe," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 149(2), pages 395-422, June.
  8. Herzer, Dierk, 2014. "Unions and income inequality: a heterogenous cointegration and causality analysis," Working Paper 146/2014, Helmut Schmidt University, Hamburg.

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