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Fdi And Income Inequality: Evidence From A Panel Of U.S. States

  • PANDEJ CHINTRAKARN
  • DIERK HERZER
  • PETER NUNNENKAMP

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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File URL: http://hdl.handle.net/10.1111/j.1465-7295.2011.00384.x
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Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 50 (2012)
Issue (Month): 3 (07)
Pages: 788-801

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Handle: RePEc:bla:ecinqu:v:50:y:2012:i:3:p:788-801
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