The authors are grateful to Bruce E. Hansen for sharing GAUSS code. This work was supported by Special Research Grant of Korea University. The usual disclaimer applies.
FOREIGN DIRECT INVESTMENT AND INCOME INEQUALITY: HUMAN CAPITAL MATTERS†
Article first published online: 18 NOV 2013
© 2013 Wiley Periodicals, Inc.
Journal of Regional Science
Special Issue: Mini-Special Issue: Regional Innovation Hotspots and Spatial Development
Volume 53, Issue 5, pages 874–896, December 2013
How to Cite
Lin, S.-C., Kim, D.-H. and Wu, Y.-C. (2013), FOREIGN DIRECT INVESTMENT AND INCOME INEQUALITY: HUMAN CAPITAL MATTERS. Journal of Regional Science, 53: 874–896. doi: 10.1111/jors.12077
- Issue published online: 2 DEC 2013
- Article first published online: 18 NOV 2013
- Manuscript Revised: JUL 2013
- Manuscript Accepted: JUL 2013
- Manuscript Received: FEB 2011
- Special Research Grant of Korea University
This paper empirically examines whether human capital defines the association between foreign direct investment (FDI) and income inequality. Rather than focusing on one country or region, we investigate with a broad cross section of countries to address parameter heterogeneity across countries. Using the instrumental variable threshold regressions approach, we find a significant threshold level of human capital, below which FDI exerts a disproportionately positive (negative) impact on the relatively poor (rich) and hence improves income distribution. Beyond this critical level, however, FDI benefits (harms) the nonpoor (nonrich) most and thus exacerbates income inequality.