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: Income Inequality and FDI: Evidence with Turkish Data

Listed author(s):
  • Meltem Ucal

    ()

    (Department of Economics, Kadir Has University, Istanbul, Turkey)

  • Mehmet Hüseyin Bilgin

    ()

    (Department of International Relations, Istanbul Medeniyet University, Istanbul, Turkey)

  • Alfred Haug

    ()

    (Department of Economics, University of Otago, New Zealand)

This paper explores how foreign direct investment (FDI) and other determinants impact income inequality in Turkey in the short- and long-run. We apply the ARDL (Auto-Regressive Distributed Lag) modelling approach, which is suitable for small samples. The data for the study cover the years from 1970 to 2008. The empirical results indicate the existence of a cointegration relationship among the variables. The positive impact of the FDI growth rate on income inequality, worsening inequality, is shown to be significant in the short-run, though at the 10% significance level only and with a quantitatively small impact, and insignificant in the long-run. In other words, FDI increases income inequality initially somewhat but this effect disappears in the long run. The literacy rate clearly reduces inequality in the long run, but also in the short run. On the other hand, population growth worsens inequality in the long run, and the effect is quite large, though it has no statistically significant effect on inequality in the short run. Also, an increase in GDP growth reduces inequality especially in the short run (at a 5% level of significance) but also in the long run (though only at the 10% level).

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File URL: http://www.otago.ac.nz/economics/news/otago078310.pdf
File Function: First version, 2014
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Paper provided by University of Otago, Department of Economics in its series Working Papers with number 1407.

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Length: 30 pages
Date of creation: Jun 2014
Date of revision: Jun 2014
Handle: RePEc:otg:wpaper:1407
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