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The process of income inequality development from foreign direct investment in developing countries: a system dynamics approach

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  • Pard Teekasap

Abstract

This paper studies the development process of an income inequality from the foreign direct investment (FDI) in developing countries using system dynamics modelling approach. This study models the country into two regions with separated economic situation but people can move across the region. FDI selects the investment location based on the operating cost. The results show that when one region can attract more FDI than another region, the wages of the workers in that region will increase and more people will relocate to that region, which creates income inequality. However, when the unemployment rate is low, the wages of both regions will increase and the income inequality drops. The policy supporting worker relocation can reduce the income inequality but the wages are also reduced.

Suggested Citation

  • Pard Teekasap, 2014. "The process of income inequality development from foreign direct investment in developing countries: a system dynamics approach," International Journal of Process Management and Benchmarking, Inderscience Enterprises Ltd, vol. 4(2), pages 127-144.
    • Handle: RePEc:ids:ijpmbe:v:4:y:2014:i:2:p:127-144
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    Cited by:

    1. Mojtaba Hajian Heidary, 2022. "A system dynamics model of the impact of COVID-19 pandemic and foreign direct investment in the global supply chain," Future Business Journal, Springer, vol. 8(1), pages 1-9, December.

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