Foreign direct investment and income inequality in transitional economies
Keywords:
Foreign Direct Investment; Income Inequality; Transitional EconomiesAbstract
The study investigated the impact of FDI on income inequality and using technology to avoid omitted variable bias. Fixed effects, random effects and pooled ordinary least squares were used with data spanning from 2005 to 2015. Although the subject on FDI and its absorption capacities have been going on for almost a decade now, there is no consensus yet on the list of factors that enables FDI to influence income inequality. Wu and Hsu (2012) and Mihaylova (2015) attempted to investigate to investigate FDI-inequality-absorption capacities but the findings are not clear with regards to ICT as an absorption capacity. The current study found out that the interaction between ICT and FDI had a non-significant positive influence on income inequality in transitional economies. The study urges the transitional economies to develop ICT policies that enhances FDI’s ability to reduce income inequality.
References
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11. Calvo, M.B. and Sanchez-Robles, B. (2002). Foreign direct investment, Economic freedom and Economic growth: New evidence from Latin America. Universidad de Cartabria, Economics Working Paper No. 4/03.
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14. Chintrakarn, P. Herzer, D. and Nunnenkamp, P. (2010). FDI and income inequality: Evidence from a panel of US states. Kiel Working Papers Series Number 1579.
15. Choong, C.K. (2012). Does domestic financial development enhance the linkages between foreign direct investment and economic growth? Empirical Economics, Vol. 42(3), pp. 819-834.
16. Clark, D.P.C. Highfill, J. Campino, J.O. and Rehman, S.S. (2011). FDI, technology spill overs, growth and income inequality: A selective survey. Global Economy Journal, Vol. 11 (2), pp. 1-42.
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23. Kaur, M. Yadav, S.S. and Gautam, V. (2013). Financial system development and foreign direct investment: A panel study for BRICS countries. Global Business Review, Vol. 14(4), pp. 729-742.
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34. Mahutga, M.C. and Bandelj, N. (2008). Foreign investment and income inequality: The natural experiment of Central and Eastern Europe. International Journal of Comparative Sociology, Vol. 49 (6), pp. 429-454.
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37. Mihaylova, S. (2015). Foreign direct investment and income inequality in Central and Eastern Europe. Theoretical and Applied Economics, Vol. 22 (2), pp. 23-42.
38. Nath, H. (2005). Trade, Foreign direct investment and growth: Evidence from transition economies. SHSU Economics and International Business Working paper No. SHSU-Eco-WP05-04. Huntsville, TX: Sam Houston State University.
39. Pigato, M. (2000). Foreign direct investment in Africa: Old tales and new evidence. Washington, DC: Mimeo, The World Bank.
40. Olugbenga, A.A. and Grace, O.O. (2015). Impact of foreign direct investment on Nigerian capital market development. International Journal of Academic Research in Accounting, Finance and Management Studies, Vol. 5(1), pp. 103-108.
41. Omri, A. and Kahouli, B. (2014). The nexus among foreign investment, domestic capital and economic growth: Empirical evidence from the MENA region. Research in Economics, Vol. 68(3), pp. 257-263.
42. Raza, A. Iqbal, N. Ahmed, Z. Ahmed, M. and Ahmed, T. (2012). The role of FDI on stock market development: The case of Pakistan. Journal of Economics and Behavioural Studies, Vol. 4(1), pp. 26-33.
43. Raza, A. and Jawaid, S.T. (2014). Foreign capital inflows, economic growth and stock market capitalisation in Asian countries: An ARDL bound testing approach. Quality and Quantity, Vol. 48(1), pp. 375-385.
44. Richmond, K. and Triplett, R.E. (2018). ICT and income inequality: A cross-national perspective. International Review of Applied Economics, Vol. 32 (2), pp. 195-214.
45. Romer, P. (1986). Increasing returns and long run economic growth. Journal of Political Economy, Vol. 94(5), pp. 1002-1037.
46. Seenivasan, R. (2014). Analysis of the relationship between FDI and economic growth. Advances in Management, Vol. 7(1), pp. 1-23
47. Shih, E. Kraemer, K.L. and Dedrick, L. (2008). IT diffusion in developing economies: Policy issues and recommendations. Communications of the ACM, Vol. 51 (2), pp. 43-48.
48. Solow, R. (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics, Vol. 70(1), pp. 65-94.
49. Stead, R. (1996). Foundation quantitative methods for business. Prentice Hall. England.
50. Suanes, M. (2016). Foreign direct investment and income inequality in Latin America: A sectoral analysis. Cepal Review, Vol. 118 (April), pp. 46-61.
51. Sultana, S.T.S and Pardhasaradhi, S. (2012). Impact of flow of FDI and FII on Indian stock market. Finance Research, Vol. 1(3), pp. 4-10.
52. Swan, T. (1956). Economic growth and capital accumulation. The Economic Record, Vol. 32 (2), pp. 334-361.
53. Teekasap, P. (2014). The process of income inequality development from foreign direct investment in developing countries: A systems dynamics approach. International Journal of Process Management and Benchmarking, Vol. 4 (2).
54. Trinh, N.H. (2016). The effect of foreign direct investment on income inequality in Vietnam. International Journal of Economics, Commerce and Management, Vol. 4 (12), pp. 158-173.
55. Tsaurai, K. (2018a). Is the complementarity between remittances and human capital development a panacea for income inequality reduction? International Journal of Services, Economics and Management, Vol. 9 (1), pp. 1-17.
56. Tsaurai, K. (2018b). Exploring the employment effect of FDI in BRICS: Does conditionalities matter? Acta Universitatis Danubius. OEconomica, Vol. 14 (3), pp. 86-103.
57. Tsaurai, K. (2018c) ‘Does trade openness and foreign direct investment complement or substitute each other in poverty alleviation?’, Euro Economica, Vol. 37(1), pp. 223-236.
58. UNCTAD (2017). United Nations Global Investment Trends monitor Number 25, 1 February 2017, pp. 1-8.
59. Vita. G. and Kyaw, K. (2009). Growth effects of FDI and portfolio investment flows to developing countries: A disaggregated analysis by income levels, Applied economics letters, Vol. 16(3), pp. 277-283.
60. Wu, J. and Hsu, C. (2012). Foreign direct investment and income inequality: Does the relationship vary with absorption capacity? Economic Modelling, Vol. 29 (6), pp. 2183-2189.
61. Zhuang, H. and Griffith, D. (2013). The effect of mergers and acquisitions and greenfield FDI on income inequality. International Journal of Applied Economics, Vol. 10 (1), pp. 29-38.
2. Ahuja, R. (2017). FDI and income inequality: A literature survey. International Journal of Multidisciplinary Research and Development, Vol. 4 (6), pp. 158-160.
3. Almfraji, M.A. and Almsafir, M.K. (2014). Foreign direct investment and economic growth literature review from 1994 to 2012. Procedia – Social and Behavioural Sciences, Vol. 129(May), pp. 206-213.
4. Asong, S.A. (2014). Linkages between investment flows and financial development. African Journal of Economic and Management Studies, Vol. 5(3), pp. 269-299.
5. Assaf, A.A. (2017). The impact of inward FDI stocks on income inequality in Jordan. Journal of Economics and Sustainable Development, Vol. 8 (6), pp. 30-35.
6. Aye, G.C. and Edoja, P.E. (2017), Effect of economic growth on C02 emission in developing countries: Evidence from a dynamic panel threshold model. Cogent Economics and Finance, 5 (1), 1-22.
7. Azam, M. and Ibrahim, Y. (2014). Foreign direct investment and Malaysian’s stock market: Using ARDL bounds testing approach. Journal of Applied Economic Sciences, Vol. 9(4), pp. 591-601.
8. Bakshi, A.S.M.R.H.K. (2009). Foreign direct investment and wage inequality: The case of China. Pakistan Journal of Social Sciences, Vol. 6 (4), pp. 228-235.
9. Barro, R.J. (2000). Inequality in a panel of countries. Journal of Economic Growth, 5(March), 5-32.
10. Bhandari, B. (2007). Effect of inward foreign direct investment on income inequality in transition countries. Journal of Economic Integration, Vol. 22 (4), pp. 888-928.
11. Calvo, M.B. and Sanchez-Robles, B. (2002). Foreign direct investment, Economic freedom and Economic growth: New evidence from Latin America. Universidad de Cartabria, Economics Working Paper No. 4/03.
12. Chen, C. (2016). The impact of foreign direct investment on urban-rural income inequality: Evidence from China. China Agricultural Economic Review, Vol. 8 (3), pp. 480-497.
13. Chen, C. Zhao, H. and Zhou, Y. (2017). Foreign direct investment and wage inequality: Evidence from the People’s Republic of China. ADB Institute Working Papers Series Number 734.
14. Chintrakarn, P. Herzer, D. and Nunnenkamp, P. (2010). FDI and income inequality: Evidence from a panel of US states. Kiel Working Papers Series Number 1579.
15. Choong, C.K. (2012). Does domestic financial development enhance the linkages between foreign direct investment and economic growth? Empirical Economics, Vol. 42(3), pp. 819-834.
16. Clark, D.P.C. Highfill, J. Campino, J.O. and Rehman, S.S. (2011). FDI, technology spill overs, growth and income inequality: A selective survey. Global Economy Journal, Vol. 11 (2), pp. 1-42.
17. Dhiman, R. and Sharma, P. (2013). Impact of flow of FDI on Indian capital market. European Journal of Business and Management, Vol. 5(9), pp. 75-80.
18. Eicher, T.S. and Penalosa, C.G. (2001). Inequality and growth: the dual role of human capital in development. Journal of Development Economics, 66 (1), 173-197.
19. Gholami, R. Lee, S.T. and Heshmati, A. (2006). The causal relationship between information and communication technology and foreign direct investment. The World Economy, Vol. 29 (1), pp. 43-62.
20. Goff, M.L. and Singh, R.J. (2014). Does trade reduce poverty? A review from Africa. Journal of African Trade, Vol. 1 (1), pp. 5-14.
21. Gujarati, D.N. (2003). Basic econometrics, Vol. 4th edition. Boston: McGraw Hill.
22. Kaulihowa, T. and Adjasi, C. (2018). FDI and income inequality in Africa. Oxford Development Studies, Vol. 46 (2), pp. 250-265.
23. Kaur, M. Yadav, S.S. and Gautam, V. (2013). Financial system development and foreign direct investment: A panel study for BRICS countries. Global Business Review, Vol. 14(4), pp. 729-742.
24. Kumar, N. and Pradhan, J.P. (2002). FDI, externalities and economic growth in developing countries: Some empirical explorations and implications for WTO negotiations on investment. RIS Discussion Paper No. 27/2002. New Delhi, India.
25. Kuznet, S. (1955). Economic growth and income inequality. American Economic Review, Vol. 45 (1), pp. 1-28.
26. Lucas, R., (1988). On the mechanics of economic development. Journal of Monetary Economics, Vol. 22(1), pp. 3-42.
27. Im, K.S. Pesaran, M.H. and Shin, Y. (2003). Testing unit roots in heterogeneous panels. Journal of Econometrics, Vol. 115(1), pp. 53-74.
28. International Monetary Fund. 2015. World Economic Outlook: Adjusting to Lower Commodity Prices. Washington (October).
29. Hair Jr. Black, W.C. Babin, B.J. and Anderson, R.E. (2014). Multivariate data analysis. Pearson New International Edition. Seventh Edition.
30. Halmos, K. (2011). The effect of FDI, exports and GDP on income inequality in 15 Eastern European countries. Acta Polytechnica Hungarica, Vol. 8 (1), pp. 123-136.
31. Herzer, D. and Nunnenkamp, P. (2011). FDI and income inequality: Evidence from Europe. Kiel Institute for the World Economy Working Paper Number 1675.
32. Herzer, D. Huhne, P. and Nunnenkamp, P. (2014). FDI and income inequality – Evidence from Latin American economies. Review of Development Economics, Vol. 18 (4), pp. 778-793.
33. Lee, E. and Vivarelli, M. (2006). The social impact of globalization in developing countries (IZA Discussion paper, n. 1925).
34. Mahutga, M.C. and Bandelj, N. (2008). Foreign investment and income inequality: The natural experiment of Central and Eastern Europe. International Journal of Comparative Sociology, Vol. 49 (6), pp. 429-454.
35. Majeed, M.T. (2017). Inequality, FDI and economic development: Evidence from developing countries. The Singapore Economic Review, Vol. 62 (5), pp. 1039-1057.
36. Manville, C.G. Cochrane, J. Cave, J. Millard, J. Pederson, R. Thaarup, A. Liebe, M. Wissner, R. and Kotterrink, B. (2014). Mapping smart cities in the EU. European Parliament, Directorate-General for Internal Policies, Policy Department A: Economic and Scientific Policy.
37. Mihaylova, S. (2015). Foreign direct investment and income inequality in Central and Eastern Europe. Theoretical and Applied Economics, Vol. 22 (2), pp. 23-42.
38. Nath, H. (2005). Trade, Foreign direct investment and growth: Evidence from transition economies. SHSU Economics and International Business Working paper No. SHSU-Eco-WP05-04. Huntsville, TX: Sam Houston State University.
39. Pigato, M. (2000). Foreign direct investment in Africa: Old tales and new evidence. Washington, DC: Mimeo, The World Bank.
40. Olugbenga, A.A. and Grace, O.O. (2015). Impact of foreign direct investment on Nigerian capital market development. International Journal of Academic Research in Accounting, Finance and Management Studies, Vol. 5(1), pp. 103-108.
41. Omri, A. and Kahouli, B. (2014). The nexus among foreign investment, domestic capital and economic growth: Empirical evidence from the MENA region. Research in Economics, Vol. 68(3), pp. 257-263.
42. Raza, A. Iqbal, N. Ahmed, Z. Ahmed, M. and Ahmed, T. (2012). The role of FDI on stock market development: The case of Pakistan. Journal of Economics and Behavioural Studies, Vol. 4(1), pp. 26-33.
43. Raza, A. and Jawaid, S.T. (2014). Foreign capital inflows, economic growth and stock market capitalisation in Asian countries: An ARDL bound testing approach. Quality and Quantity, Vol. 48(1), pp. 375-385.
44. Richmond, K. and Triplett, R.E. (2018). ICT and income inequality: A cross-national perspective. International Review of Applied Economics, Vol. 32 (2), pp. 195-214.
45. Romer, P. (1986). Increasing returns and long run economic growth. Journal of Political Economy, Vol. 94(5), pp. 1002-1037.
46. Seenivasan, R. (2014). Analysis of the relationship between FDI and economic growth. Advances in Management, Vol. 7(1), pp. 1-23
47. Shih, E. Kraemer, K.L. and Dedrick, L. (2008). IT diffusion in developing economies: Policy issues and recommendations. Communications of the ACM, Vol. 51 (2), pp. 43-48.
48. Solow, R. (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics, Vol. 70(1), pp. 65-94.
49. Stead, R. (1996). Foundation quantitative methods for business. Prentice Hall. England.
50. Suanes, M. (2016). Foreign direct investment and income inequality in Latin America: A sectoral analysis. Cepal Review, Vol. 118 (April), pp. 46-61.
51. Sultana, S.T.S and Pardhasaradhi, S. (2012). Impact of flow of FDI and FII on Indian stock market. Finance Research, Vol. 1(3), pp. 4-10.
52. Swan, T. (1956). Economic growth and capital accumulation. The Economic Record, Vol. 32 (2), pp. 334-361.
53. Teekasap, P. (2014). The process of income inequality development from foreign direct investment in developing countries: A systems dynamics approach. International Journal of Process Management and Benchmarking, Vol. 4 (2).
54. Trinh, N.H. (2016). The effect of foreign direct investment on income inequality in Vietnam. International Journal of Economics, Commerce and Management, Vol. 4 (12), pp. 158-173.
55. Tsaurai, K. (2018a). Is the complementarity between remittances and human capital development a panacea for income inequality reduction? International Journal of Services, Economics and Management, Vol. 9 (1), pp. 1-17.
56. Tsaurai, K. (2018b). Exploring the employment effect of FDI in BRICS: Does conditionalities matter? Acta Universitatis Danubius. OEconomica, Vol. 14 (3), pp. 86-103.
57. Tsaurai, K. (2018c) ‘Does trade openness and foreign direct investment complement or substitute each other in poverty alleviation?’, Euro Economica, Vol. 37(1), pp. 223-236.
58. UNCTAD (2017). United Nations Global Investment Trends monitor Number 25, 1 February 2017, pp. 1-8.
59. Vita. G. and Kyaw, K. (2009). Growth effects of FDI and portfolio investment flows to developing countries: A disaggregated analysis by income levels, Applied economics letters, Vol. 16(3), pp. 277-283.
60. Wu, J. and Hsu, C. (2012). Foreign direct investment and income inequality: Does the relationship vary with absorption capacity? Economic Modelling, Vol. 29 (6), pp. 2183-2189.
61. Zhuang, H. and Griffith, D. (2013). The effect of mergers and acquisitions and greenfield FDI on income inequality. International Journal of Applied Economics, Vol. 10 (1), pp. 29-38.
Published
2020-10-02
How to Cite
Tsaurai, K. (2020). Foreign direct investment and income inequality in transitional economies: Array. Acta Universitatis Danubius. Œconomica, 16(6). Retrieved from https://dj.univ-danubius.ro/index.php/AUDOE/article/view/519
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Business Administration and Business Economics
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