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Kiel Institute for World Economics Kiel Working Papers, Kiel Institute for World Economics

No 1791:
FDI and Income Inequality - Evidence from Latin American Economies

Dierk Herzer, Philipp Hühne and Peter Nunnenkamp

Abstract: We analyze whether foreign direct investment (FDI) has contributed to the typically wide income gaps in five Latin American host countries. We perform country-specific and panel cointegration techniques to assess the long-run impact of inward FDI stocks on income inequality among households in Bolivia, Chile, Colombia, Mexico and Uruguay. The panel cointegration analysis reveals a significant and positive effect on income inequality. Furthermore, FDI contributed to widening income gaps in all individual sample countries, except for Uruguay. Our findings are robust to the choice of different estimation methods. There is no evidence for reverse causality

Keywords: FDI, income inequality, cointegration techniques, Latin America; (follow links to similar papers)

JEL-Codes: F21,; D31; (follow links to similar papers)

38 pages, August 2012

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