Kiel Working Papers, Kiel Institute for World Economics
No 1281:
Distributional Effects of FDI: How the Interaction of FDI and Economic Policy Affects Poor Households in Bolivia
Peter Nunnenkamp, Rainer Schweickert and Manfred Wiebelt
Abstract: This paper provides a computable general equilibrium
analysis of the medium to long-run impact of FDI inflows on poverty and
income distribution in Bolivia. The CGE analysis addresses several
important transmission channels which have been neglected in the empirical
literature by (i) investigating the impact of FDI inflows on incomes of
urban and rural households; (ii) taking into account informal activities;
and (iii) differentiating between various segments of the urban workforce,
whereas previous studies are typically confined to the dichotomy between
white-collar and blue-collar workers in manufacturing industries. The
simulation results suggest that FDI inflows add to Bolivia’s investment
ratio, enhance economic growth, and reduce poverty. However, the income
distribution typically becomes more unequal. In particular, FDI widens
income disparities between urban and rural areas Our results point to two
levers through which the Bolivian government may promote growthenhancing
and poverty-alleviating effects of FDI. First, it seems important to
overcome labor market segmentation. Second, complementary public investment
in infrastructure may help remove bottlenecks in the absorptive capacity of
the economy that tend to limit productive employment of the poor. Yet,
simulated policy reforms or alternative productivity scenarios are hardly
effective in reducing the divide between urban and rural areas.
Keywords: Foreign direct investment, poverty and income distribution, Bolivia, computable general equilibrium analysis; (follow links to similar papers)
JEL-Codes: C68,; D3,; F21,; O5; (follow links to similar papers)
36 pages, June 2006
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