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Does Fdi Actually Affect Income Inequality? Insights From 25 Years Of Research

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  • Kaixing Huang
  • Nicholas Sim
  • Hong Zhao

Abstract

While there are 25 years of empirical research on how FDI may affect income inequality, there is surprisingly no consensus on this issue. In this paper, we conduct a meta‐analysis on the effect of FDI on inequality using 543 empirical studies from 1995 to 2019. Among various factors, we find that the development level of the study country has the strongest influence on the direction in which FDI affects income inequality. When the primary studies are sorted into three groups based on the GDP per capita of their sample areas, the within‐group estimates on the effect of FDI on income inequality become strongly consistent with each other. Particularly, we find that FDI is associated with higher inequality for the low‐income group, has no statistically significant effect for the middle‐income group, and is associated with lower inequality for the high‐income group. This observation suggests that FDI may increase income inequality as a country initially develops, but reduce inequality as development deepens.

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  • Kaixing Huang & Nicholas Sim & Hong Zhao, 2020. "Does Fdi Actually Affect Income Inequality? Insights From 25 Years Of Research," Journal of Economic Surveys, Wiley Blackwell, vol. 34(3), pages 630-659, July.
    • Handle: RePEc:bla:jecsur:v:34:y:2020:i:3:p:630-659
    DOI: 10.1111/joes.12373
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    3. Ofori, Isaac K. & Gbolonyo, Emmanuel Y. & Ojong, Nathanael, 2023. "Foreign direct investment and inclusive green growth in Africa: Energy efficiency contingencies and thresholds," Energy Economics, Elsevier, vol. 117(C).
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    6. Sakib Bin Amin & Yaron Nezleen Amin & Mahatab Kabir Khandaker & Farhan Khan & Faria Manal Rahman, 2022. "Unfolding FDI, Renewable Energy Consumption, and Income Inequality Nexus: Heterogeneous Panel Analysis," Energies, MDPI, vol. 15(14), pages 1-21, July.
    7. Sintos, Andreas, 2023. "Does inflation worsen income inequality? A meta-analysis," Economic Systems, Elsevier, vol. 47(4).
    8. Ofori, Isaac K. & Gbolonyo, Emmanuel Y. & Ojong, Nathanael, 2022. "Foreign Direct Investment and Inclusive Green Growth in Africa: Energy Efficiency Contingencies and Thresholds," MPRA Paper 115379, University Library of Munich, Germany, revised 09 Nov 2022.
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