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Trade, FDI and income inequality: empirical evidence from CIS

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  • Imran Khan
  • Zuhaba Nawaz

Abstract

Purpose - The purpose of this study is to examine the relationship between trade, foreign direct investment (FDI) and income inequality for Commonwealth of Independent States (CIS), using annual data from 1990 to 2016. The study attempts to answer a critical question: does openness affect income distribution? Design/methodology/approach - The analysis of the model involves the examination of likely non-linear effects of both trade and FDI on income distribution. Therefore, system-generalized method of moments (SYS-GMM) estimator was applied to mitigate the problem of non-linearity and possible endogeneity. In the second stage, the model was extended to test the impact of education on income inequality. The hypothesis is that secondary school enrollment speeds up the process of adoption of contemporary technology and decreases inequality. Findings - Trade and FDI have significant effects on income inequality when interacted with Gini-index; in case of trade, an inverted U-shaped curve holds as purposed by the trade theory. The components-wise effect of trade was held, except imports from advanced countries was found insignificant. Moreover, results were not found significant in case of human development index. Different results were found when trade and FDI interacted with education, which represents an important channel through which inequality is affected. Research limitations/implications - The study implies that CIS needs to re-design trade and FDI policies by encouraging trade and FDI inflows into industries and sectors aligned with structural adjustments, domestic industries uplift and investment in social infrastructure. Originality/value - This is the first study that has examined the impact of openness of income distribution in case of CIS.

Suggested Citation

  • Imran Khan & Zuhaba Nawaz, 2019. "Trade, FDI and income inequality: empirical evidence from CIS," International Journal of Development Issues, Emerald Group Publishing Limited, vol. 18(1), pages 88-108, February.
    • Handle: RePEc:eme:ijdipp:ijdi-07-2018-0107
    DOI: 10.1108/IJDI-07-2018-0107
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    Citations

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    Cited by:

    1. Ofori, Isaac K. & Gbolonyo, Emmanuel Y. & Ojong, Nathanael, 2023. "Foreign direct investment and inclusive green growth in Africa: Energy efficiency contingencies and thresholds," Energy Economics, Elsevier, vol. 117(C).
    2. Isaac K. Ofori & Emmanuel Y. Gbolonyo & Nathanael Ojong, 2022. "Foreign Direct Investment and Inclusive Green Growth in Africa: Energy Efficiency Contingencies and Thresholds," Working Papers 22/089, European Xtramile Centre of African Studies (EXCAS).
    3. Ofori, Isaac K. & Dossou, Marcel A.M. & Asongu, Simplice A. & Armah, Mark K., 2023. "Bridging Africa’s income inequality gap: How relevant is China’s outward FDI to Africa?," Economic Systems, Elsevier, vol. 47(1).
    4. Nguyen, Canh Phuc & Nasir, Muhammad Ali, 2021. "An inquiry into the nexus between energy poverty and income inequality in the light of global evidence," Energy Economics, Elsevier, vol. 99(C).
    5. Md. Iqbal Bhuyan & Keun-Yeob Oh, 2021. "Exports and Inequality: Evidence from the Highly Concentrated Textile and Garment Sector of Bangladesh," Journal of South Asian Development, , vol. 16(2), pages 293-309, August.
    6. Nguyen, Canh Phuc & Su, Thanh Dinh, 2022. "The influences of government spending on energy poverty: Evidence from developing countries," Energy, Elsevier, vol. 238(PA).
    7. Chenghong Xu & Mingming Han & Toyo Amegnonna Marcel Dossou & Festus Victor Bekun, 2021. "Trade openness, FDI, and income inequality: Evidence from sub‐Saharan Africa," African Development Review, African Development Bank, vol. 33(1), pages 193-203, March.
    8. Ofori, Isaac K & Gbolonyo, Emmanuel Y. & Ojong, Nathanael, 2022. "Foreign Direct Investment and Inclusive Green Growth in Africa: Energy Efficiency Contingencies and Thresholds," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 1-58.
    9. Toyo Amègnonna Marcel Dossou, 2023. "Income Inequality in Africa: Exploring the Interaction Between Urbanization and Governance Quality," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 167(1), pages 421-450, June.
    10. Isaac K. Ofori & Emmanuel Y. Gbolonyo & Nathanael Ojong, 2022. "Foreign Direct Investment and Inclusive Green Growth in Africa: Energy Efficiency Contingencies and Thresholds," Working Papers of the African Governance and Development Institute. 22/089, African Governance and Development Institute..
    11. , Le Thanh Tung, 2022. "Impact of foreign direct investment on inequality in emerging economies: Does the Kuznets curve hypothesis exist?," OSF Preprints 34fmy, Center for Open Science.
    12. Isaac K. Ofori & Toyo A. M. Dossou & Simplice A. Asongu & Mark K. Armah, 2021. "Bridging Africa’s Income Inequality Gap: How Relevant Is China’s Outward FDI to Africa?," Working Papers of the African Governance and Development Institute. 21/098, African Governance and Development Institute..
    13. Acheampong, Alex O. & Dzator, Janet & Shahbaz, Muhammad, 2021. "Empowering the powerless: Does access to energy improve income inequality?," Energy Economics, Elsevier, vol. 99(C).
    14. Dr. Ameenullah Aman & Dr. Usman Ahmad & Sumera Muhammad Saleem, 2021. "Investigating the Link Between Macroeconomic Factors and Income Inequality of Asian Countries," iRASD Journal of Economics, International Research Alliance for Sustainable Development (iRASD), vol. 3(3), pages 376-387, December.
    15. Ofori, Isaac K. & Gbolonyo, Emmanuel Y. & Ojong, Nathanael, 2022. "Foreign Direct Investment and Inclusive Green Growth in Africa: Energy Efficiency Contingencies and Thresholds," MPRA Paper 115379, University Library of Munich, Germany, revised 09 Nov 2022.

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    Keywords

    FDI;

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