FDI and Income Inequality: Evidence from Europe
AbstractThis paper examines the effects of inward and outward FDI on income inequality in Europe using panel cointegration techniques and unbalanced panel regressions. Our main result is that both inward FDI and outward FDI have, on average, a negative long-run effect on income inequality. This result is robust to alternative estimation methods, potential outliers, different measures of FDI and inequality, and period and sample selection. Other findings are: (i) While the long-run effect of inward and outward FDI on income inequality is clearly negative, their short-run effect appears to be positive. (ii) Long-run causality runs in both directions, suggesting that an increase in inward and outward FDI reduces income inequality in the long run, and that, in turn, a reduction in inequality leads to an increase in inward and outward FDI. (iii) There are large cross-country differences in the long-run effects of inward and outward FDI on income inequality; for some countries the long-run effects on income inequality are positive
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Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1675.
Length: 21 pages
Date of creation: Jan 2011
Date of revision:
FDI; income inequality; panel co-integration; Europe;
Find related papers by JEL classification:
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
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