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The Effect Of Foreign Investment On Economic Development And Income Inequality

Author

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  • Bussmann, Margit
  • de Soysa, Indra
  • Oneal, John R.

Abstract

In this paper, we assess the effect of globalization on the distribution of income within countries, focussing on the influence of foreign direct investment. We analyze data for 72 countries, 1970-90. We incorporate in our tests the Kuznets (1955) curve, measures of the character of political institutions, and various aspects of the economy and society that have been emphasized in recent research. Our results are easy to summarize. Globalization has little effect on income inequality within countries. The ratio of foreign direct investment stock to gross domestic product is unrelated to the distribution of income. Income inequality in developing and developed countries is unaffected by the presence of multinational corporations. Nor are alternative measures of economic openness - the trade-to-GDP ratio and Sachs and Warner's (1995) measure of free trade policy - associated with greater inequality. The share of income received by the poorest 20% of society in particular is not influenced by the economic importance of foreign investment. If foreign investment increases average incomes in developing countries, as we confirm here, and does not affect the distribution of income, it must benefit all segments of society in developing countries.

Suggested Citation

  • Bussmann, Margit & de Soysa, Indra & Oneal, John R., 2002. "The Effect Of Foreign Investment On Economic Development And Income Inequality," Discussion Papers 18718, University of Bonn, Center for Development Research (ZEF).
    • Handle: RePEc:ags:ubzefd:18718
    DOI: 10.22004/ag.econ.18718
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    Citations

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    Cited by:

    1. Nunnenkamp, Peter & Schweickert, Rainer & Wiebelt, Manfred, 2006. "Distributional effects of FDI: How the interaction of FDI and economic policy affects poor households in Bolivia," Kiel Working Papers 1281, Kiel Institute for the World Economy (IfW Kiel).
    2. Kashif MUNIR & Maryam SULTAN, 2017. "Macroeconomic determinants of income inequality in India and Pakistan," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(4(613), W), pages 109-120, Winter.
    3. Krüger, Ralf & Ahlfeld, Sebastian, 2005. "Ausländische Direktinvestitionen in Entwicklungsländern: Eine überschätzte Wachstumsdeterminante?," Discussion Papers in Development Economics 31, Justus Liebig University Giessen, Institute for Development Economics.
    4. Justine Kyove & Katerina Streltsova & Ufuoma Odibo & Giuseppe T. Cirella, 2021. "Globalization Impact on Multinational Enterprises," World, MDPI, vol. 2(2), pages 1-15, April.
    5. repec:zbw:ifwkie:4251 is not listed on IDEAS
    6. Hemmer, Hans-Rimbert & Krüger, Ralf & Seith, Jennifer, 2006. "Ausländische Direktinvestitionen: Flankierende Maßnahmen des Staates," Discussion Papers in Development Economics 36, Justus Liebig University Giessen, Institute for Development Economics.

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