Economic Growth, FDI, Trade Openness, and Inequality: Standing of Asian Economies

Abstract

The main objective of this study is to identify the effect of foreign direct investment (FDI) and trade openness (TO) on income inequality in 25 Asian economies using panel data from 1991 to 2018. The effects of FDI and trade openness on income inequality in the Asian region has been examined by using the Kuznets curve hypothesis on the growth–inequality relationship and employing a random effects model, generalized least squares, and system GMM estimations. This study found that the effect of FDI and trade openness on inequality is positive as they enhance income inequality in the Asian region. It also found that the growth–inequality relationship is non-linear with an inverted U-shape, which indicates that growth increases inequality in Asian economies to a certain level; after that, an additional increase in per capita GDP decreases the income inequality. This study exposed that FDI and trade openness have increased inequalities in the Asian region, making it difficult to achieve the Sustainable Development Goal (SDG) 10 within the stipulated timeframe. Asian economies should therefore review investment- and trade-related policies to reap the benefits and to ensure equitable income distribution.

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