Kiel Working Papers, Kiel Institute for World Economics
No 1675:
FDI and Income Inequality: Evidence from Europe
Dierk Herzer and Peter Nunnenkamp
Abstract: This paper examines the effects of inward and outward FDI
on income inequality in Europe using panel cointegration techniques and
unbalanced panel regressions. Our main result is that both inward FDI and
outward FDI have, on average, a negative long-run effect on income
inequality. This result is robust to alternative estimation methods,
potential outliers, different measures of FDI and inequality, and period
and sample selection. Other findings are: (i) While the long-run effect of
inward and outward FDI on income inequality is clearly negative, their
short-run effect appears to be positive. (ii) Long-run causality runs in
both directions, suggesting that an increase in inward and outward FDI
reduces income inequality in the long run, and that, in turn, a reduction
in inequality leads to an increase in inward and outward FDI. (iii) There
are large cross-country differences in the long-run effects of inward and
outward FDI on income inequality; for some countries the long-run effects
on income inequality are positive
Keywords: FDI, income inequality, panel co-integration, Europe; (follow links to similar papers)
JEL-Codes: F21,; D31,; C23; (follow links to similar papers)
21 pages, January 2011
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