Theoretical and Applied Economics
No. 1 / 2019 (618), Spring
Human capital and the FDI-Income inequality nexus in African countries: Panel smooth transition regression approach
Marmara University, Istanbul, Turkey
Abstract. The link between foreign direct investment (FDI) and income inequality has received little attention in the literature. This paper investigates empirically the relationship between FDI and income inequality using an unbalanced panel data made up of 26 African countries over the period 1990-2013. First, we estimate the linear relation using the now popular System-GMM estimation techniques to control for potential endogeneity bias. We find that FDI deepens income inequality. Secondly, we go further in the analysis to examine whether the impact of FDI on income inequality depends on absorptive capacity, by employing a panel smooth transition regression model which is more suitable to deal with cross-country heterogeneity issues. We use human capital stock as a proxy for absorptive capacity, and the results show that the impact of FDI on income inequality is conditioned by the level of human capital stock in the host country. Specifically, we find that FDI increases income inequality in countries with low levels of human capital stock, and reduces income inequality in countries with high levels of human capital stock. These findings suggest that policies oriented towards FDI liberalization in African countries should go hand in hand with policies that aim at improving human capital stock in order to mitigate the potential inequality-increasing effect of FDI.
Contents
Why do high ability people also suffer from money illusion? Experimental evidence of behavioral contradiction
Macroeconomic stability of new member states of the European Union: Fifth enlargement
The global context of economic crises and cohesion funds in the EU
Is real depreciation or more government deficit expansionary? The case of Macedonia
Models and theories in a frictions and wage rigidities labor market
Human capital and the FDI-Income inequality nexus in African countries: Panel smooth transition regression approach
Are institutions a crucial determinant of cross country economic efficiency? A two-stage double bootstrap data envelopment analysis
The relationship between unemployment and some macroeconomic variables: Empirical evidence from India
Inequity in health care sector in India: A case study of district level in four Indian states
Performance in public administration: Doing outside the box under the rule of procedures
Trade effects based on general equilibrium
Empirically testing Keynesian defense burden hypothesis, nonlinear hypothesis, and spillover hypothesis: Evidence from Asian countries