August 2012

FDI and Income Inequality - Evidence from Latin American Economies

This paper analyzes whether foreign direct investment (FDI) has contributed to the typically wide income gaps in five Latin American countries. The authors perform country-specific and panel cointegration techniques to assess the long-run impact of inward FDI stocks on income inequality among households in Bolivia, Chile, Colombia, Mexico and Uruguay. The panel cointegration analysis reveals a significant and positive effect on income inequality. Furthermore, FDI contributed to widening income gaps in all individual sample countries, except for Uruguay. The findings are robust to the choice of different estimation methods. There is no evidence for reverse causality.

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