Kiel Working Papers, Kiel Institute for World Economics
No 1579:
FDI and Income Inequality: Evidence from a Panel of US States
Pandej Chintrakarn, Dierk Herzer and Peter Nunnenkamp
Abstract: This study employs state-level panel data to explore the
relationship between inward foreign direct investment (FDI) and income
inequality in the United States. Using panel cointegration techniques that
allow for cross-sectional heterogeneity, cross-sectional dependence, and
endogenous regressors, we find that the short-run effects of FDI on income
inequality are insignificant or weakly significant and negative. In the
long run, however, FDI exerts a significant and robust negative effect on
income inequality in the United States. This result for the United States
as a whole does not imply that FDI narrows income gaps in the long run in
each individual state. There is considerable heterogeneity in the long-run
effects of FDI on income inequality across states, with some states (21 out
of 48 cases) exhibiting a positive relationship between FDI in income
inequality
Keywords: FDI; Inequality; Panel Cointegration; United States; (follow links to similar papers)
JEL-Codes: F21,; D31,; C23; (follow links to similar papers)
30 pages, January 2010
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