Foreign direct investment and income inequality revisited

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.