The difference between trade and foreign direct investment concerning their impact on host-country income inequality
Keywords
Authors
Issue Date
2022-07-07
Language
en
Journal Title
Journal ISSN
Volume Title
Publisher
Abstract
With multiple countries facing the increase in income inequality, the importance of (reducing) income inequality becomes more important. Literature has identified multiple factors that cause income inequality – between high-skilled and low-skilled workers – to rise, including trade and foreign direct investment. The aim of this research is to determine the impact of trade and foreign direct investment concerning their impact on host-country income inequality. By differentiating between inter- and intra-industry trade and horizontal- and vertical foreign direct investment, this research investigates this hypothesized relationship in 17 OECD countries for the 2013-2019 period. Literature suggests that inter-industry and vertical foreign direct investment negatively impact host-country income inequality. However, the results suggest that there is no significant relationship between income inequality, trade and foreign direct investment. A robustness check using GINI-index as dependent variable suggests that vertical FDI is significantly related to income inequality when controlling for the effect of so-called ‘vertical’ trade. These robustness checks strengthen the need for future research, since these relationships may not remain unexplored because the robustness check suggests that vertical FDI seem to play a role in explaining income inequality.
Description
Citation
Supervisor
Faculty
Faculteit der Managementwetenschappen