Inward and Outward Foreign Direct Investment and Inequality: Evidence from a Group of Middle-Income Countries
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Chao-Hsi Huang
Abstract
Using panel data of a group of 39 middle-income countries over 1981–2006, this paper examines how globalization in general and inward and outward FDI in particular affects inequality. Depending on geographical region and economic system, each component of globalization affects inequality in three groups of countries in different ways: open to inward FDI tends to affect income distribution adversely in transition economies and Latin American countries, but marginally improves income distribution in countries of the reference group. In contrast, open to outward FDI is positively associated with inequality in the reference group whereas negatively associated with that of the other two groups of countries. Crucially, improvement in human capital appears to be the single most reliable way to reduce inequality.
Acknowledgments
We are indebted to Professors Jannett Highfill and W. Charles Sawyer for their great encouragement. The usual disclaimer applies.
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Appendix
Description of variables and sources.
| Variables | Description | Sources |
| GINI | Gini coefficient × 100 | World Income Inequality Database, V2.0C (05/2008) |
| INFDIS | Inward FDI stock as a percentage of GDP | UNCTAD, UNCTADstat |
| OUTFDIS | Outward FDI stock as a percentage of GDP | UNCTAD, UNCTADstat |
| PCGDP | Real per capita GDP (in US$ 2005) | WDI2013 (2013/09/33 Revised) |
| GOV | General government final consumption as a percentage of GDP | WDI2013 (2013/09/33 Revised) |
| TRADE | Trade (import + export) as a percentage of GDP | WDI2013 (2013/09/33 Revised) |
| AGRIL | Employment in agriculture as a percentage of total labor force | WDI2013 (2013/09/33 Revised) |
| HCAP | Secondary school enrollment ratio | WDI2013 (2013/09/33 Revised) |
Sample countries and their number of observations.
| Group | Country | Model 1 | Model 2 | Model 3 | Model 4 |
| TE | Belarus | 3 | 7 | 12 | 7 |
| Bulgaria | 15 | 16 | 16 | 16 | |
| China | 17 | 17 | 17 | 17 | |
| Kazakhstan | 5 | 6 | 6 | 6 | |
| Latvia | 9 | 12 | 12 | 12 | |
| Lithuania | 9 | 10 | 10 | 10 | |
| Macedonia, FYR | 4 | 13 | 13 | 13 | |
| Romania | 16 | 16 | 16 | 16 | |
| Russian Federation | 6 | 6 | 6 | 6 | |
| Czech Republic | 13 | 13 | 13 | 13 | |
| Estonia | 11 | 11 | 11 | 11 | |
| Hungary | 0 | 16 | 16 | 16 | |
| Poland | 16 | 16 | 16 | 16 | |
| Slovak Republic | 0 | 0 | 5 | 13 | |
| Slovenia | 12 | 13 | 13 | 0 | |
| LA | Argentina | 16 | 19 | 19 | 23 |
| Brazil | 6 | 6 | 20 | 6 | |
| Chile | 17 | 17 | 18 | 17 | |
| Colombia | 10 | 10 | 10 | 10 | |
| Costa Rica | 19 | 19 | 19 | 19 | |
| Dominican Republic | 7 | 7 | 7 | 7 | |
| Ecuador | 9 | 10 | 10 | 10 | |
| Mexico | 9 | 10 | 10 | 10 | |
| Panama | 12 | 12 | 12 | 12 | |
| Peru | 10 | 10 | 10 | 10 | |
| Venezuela | 18 | 18 | 20 | 18 | |
| Reference | Malaysia | 8 | 8 | 8 | 8 |
| Mauritius | 2 | 3 | 4 | 3 | |
| Singapore | 0 | 0 | 6 | 0 | |
| Taiwan | 29 | 29 | 29 | 29 | |
| Thailand | 10 | 10 | 10 | 10 | |
| Turkey | 6 | 6 | 6 | 6 | |
| Korea, Rep. | 9 | 9 | 9 | 9 | |
| Greece | 12 | 12 | 12 | 12 | |
| Ireland | 5 | 5 | 5 | 5 | |
| Italy | 12 | 12 | 12 | 12 | |
| New Zealand | 9 | 13 | 13 | 13 | |
| Portugal | 11 | 11 | 11 | 11 | |
| Spain | 14 | 14 | 14 | 14 |
©2016 by De Gruyter
Articles in the same Issue
- Frontmatter
- Articles
- With Whom Do Nations Trade? – The Fading Distance
- Long-Run Economic Growth: Stagnations, Explosions and the Middle Income Trap
- Self-Fulfilling and Fundamentals Based Speculative Attacks: A Theoretical Interpretation of the Euro Area Crisis
- Is India Ready for Inflation Targeting?
- Inward and Outward Foreign Direct Investment and Inequality: Evidence from a Group of Middle-Income Countries
- India-Us Trade and Investment: Have They Been Up To Potential?
- How do Liberalization, Institutions and Human Capital Development affect the Nexus between Domestic Private Investment and Foreign Direct Investment? Evidence from Sub-Saharan Africa
Articles in the same Issue
- Frontmatter
- Articles
- With Whom Do Nations Trade? – The Fading Distance
- Long-Run Economic Growth: Stagnations, Explosions and the Middle Income Trap
- Self-Fulfilling and Fundamentals Based Speculative Attacks: A Theoretical Interpretation of the Euro Area Crisis
- Is India Ready for Inflation Targeting?
- Inward and Outward Foreign Direct Investment and Inequality: Evidence from a Group of Middle-Income Countries
- India-Us Trade and Investment: Have They Been Up To Potential?
- How do Liberalization, Institutions and Human Capital Development affect the Nexus between Domestic Private Investment and Foreign Direct Investment? Evidence from Sub-Saharan Africa
