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Foreign direct investment, income inequality and country risk

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  • En‐Ze Wang
  • Chien‐Chiang Lee

Abstract

Given the continuous debate about the foreign direct investment (FDI)‐inequality nexus, there is an acknowledged need for reconsidering their relationship from a new perspective. Therefore, applying balanced panel data composed of 60 countries from 1998 to 2014, this research estimates a finite mixture model with country risk as a concomitant variable to explore the interrelationships among FDI, inequality, and country risk so as to offer fresh insight into the FDI‐inequality nexus. We present evidence that shows a significant role of compositing country risk on this. Specifically speaking, FDI deteriorates inequality under the condition of high risk, whereas it alleviates inequality in a country with low country risk. Moreover, we can also obtain the similar findings by considering the role of components of country risk (economic risk, financial risk and political risk) as a determinant for the FDI‐inequality nexus. FDI deteriorates inequality under the condition of high political, economic and financial risks, whereas it alleviates inequality in a country with low political, economic and financial risks.

Suggested Citation

  • En‐Ze Wang & Chien‐Chiang Lee, 2023. "Foreign direct investment, income inequality and country risk," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2415-2435, July.
    • Handle: RePEc:wly:ijfiec:v:28:y:2023:i:3:p:2415-2435
    DOI: 10.1002/ijfe.2542
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