The Impact of Foreign Direct Investment on Income Distribution in high-income Countries
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Abstract
Foreign direct investment not only contributes to economic growth and development, but also affects the way incomes are distributed in host countries, whether in developing or developed countries. The aim of this research is to analyze the effect of foreign direct investment on income distribution in high-income countries. A fixed-effects model was adopted to estimate the Standard Model using paired data for 14 high-income countries for the period 2000-2020. The estimated model took into account the effect of the unemployment rate, the rate of government spending of the gross domestic product, the inflation rate. In addition to the proportion of foreign direct investment from the gross domestic product, as variables that explain the distribution of income expressed as a ratio of the income share of the poorest 40% to the income share of the richest 20% of the population. The empirical results showed that FDI contributes to improving income distribution in favor of the poor in high-income countries. On the other hand, the results demonstrated a negative significant effect of both the unemployment rate and the inflation rate on income distribution, while the effect of government spending was positive on the fairness of income distribution in high-income countries.
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