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Foreign Direct Investment and Income Inequality revisited

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  • Hemmer, Hans-Rimbert
  • Krüger, Ralf
  • Seith, Jennifer

Abstract

* This paper discusses the impact of FDI on income inequality. * The theoretical ways in which FDI might influence income inequality between countries as well as within a given country are discussed, with special attention also given to employment generation effects. * Revisiting previous research we show that significant effects of FDI are hard to find in more recent work, with older studies showing mixed results. * Re-estimating the prominent study of Tsai (1995) with newer data we augment it by allowing for FDI-influences on inequality by region, income level, and export focus. * We find no overall impact of FDI on inequality. Also region and income differentiated estimations show no country group-specific impacts of FDI. Only in the export focusdifferentiated estimations we find some evidence of an inequality increasing impact of FDI in countries primarily exporting primary goods (without fuel). * FDI thus do not have significant implications for income distribution in general.

Suggested Citation

  • Hemmer, Hans-Rimbert & Krüger, Ralf & Seith, Jennifer, 2005. "Foreign Direct Investment and Income Inequality revisited," Discussion Papers in Development Economics 32, Justus Liebig University Giessen, Institute for Development Economics.
  • Handle: RePEc:zbw:jluide:32
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    File URL: https://www.econstor.eu/bitstream/10419/22388/1/Discussion_Paper_Nr._32.pdf
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    1. Nunnenkamp, Peter & Thiele, Rainer, 2004. "Strategien zur Bekämpfung der weltweiten Armut: Irrwege, Umwege und Auswege," Kiel Discussion Papers 407, Kiel Institute for the World Economy (IfW).
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