FDI and income inequality: Evidence from Europe

Arbeitspapier

This paper examines the relationship between foreign direct investment (FDI) and income inequality for a sample of ten European countries over the period 1980 to 2000. Using panel co-integration and causality techniques that are robust to omitted variables, slope heterogeneity, and endogenous regressors, we find that: (1) FDI has a positive short-run effect on income inequality in Europe, (2) the long-run effect of FDI on inequality, however, is negative on average, (3) long-run causality runs in both directions, suggesting that an increase in FDI reduces income inequality and, in turn, higher inequality leads to lower FDI inflows, and (4) there are large differences in the long-run effect of FDI on income inequality, with two countries (Ireland and Spain) exhibiting a positive relationship between FDI and income inequality.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Kiel Working Paper ; No. 1675

Classification and Topics

• Classification: Wirtschaft ; International Investment; Long-term Capital Movements ; Personal Income, Wealth, and Their Distributions ; Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models
• Subject: FDI ; income inequality ; panel co-integration ; Europe ; Direktinvestition ; Ausländisch ; Verteilungswirkung ; Einkommensverteilung ; Europa

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Herzer, Dierk ; Nunnenkamp, Peter
• Event: Veröffentlichung
• (who): Kiel Institute for the World Economy (IfW)
• (where): Kiel
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/45887
• Last update: 10.03.2025, 11:43 AM CET