Trade, FDI and income inequality: empirical evidence from CIS

Abstract

Purpose The purpose of this study is to examine the relationship between trade, foreign direct investment (FDI) and income inequality for Commonwealth of Independent States (CIS), using annual data from 1990 to 2016. The study attempts to answer a critical question: does openness affect income distribution? Design/methodology/approach The analysis of the model involves the examination of likely non-linear effects of both trade and FDI on income distribution. Therefore, system-generalized method of moments (SYS-GMM) estimator was applied to mitigate the problem of non-linearity and possible endogeneity. In the second stage, the model was extended to test the impact of education on income inequality. The hypothesis is that secondary school enrollment speeds up the process of adoption of contemporary technology and decreases inequality. Findings Trade and FDI have significant effects on income inequality when interacted with Gini-index; in case of trade, an inverted U-shaped curve holds as purposed by the trade theory. The components-wise effect of trade was held, except imports from advanced countries was found insignificant. Moreover, results were not found significant in case of human development index. Different results were found when trade and FDI interacted with education, which represents an important channel through which inequality is affected. Research limitations/implications The study implies that CIS needs to re-design trade and FDI policies by encouraging trade and FDI inflows into industries and sectors aligned with structural adjustments, domestic industries uplift and investment in social infrastructure. Originality/value This is the first study that has examined the impact of openness of income distribution in case of CIS.

Trade openness, FDI, and income inequality: Evidence from sub‐Saharan Africa

“…To investigate the relationship between trade openness, FDI, and inequality, we followed the study by Khan and Nawaz (2019). Our model, however, is different from this study: first, their study focused on the nexus between trade openness, FDI, and inequality in the Commonwealth of Independent States; in our case we focused on SSA.…”

Exports and Inequality: Evidence from the Highly Concentrated Textile and Garment Sector of Bangladesh

“…It is quite difficult to isolate the effects of foreign capital inflows on income inequality. Given that, we included the foreign capital inflows as control variables following the empirical literature, including FDI (Alderson & Nielsen, 1999;Chintrakarn et al, 2012;Khan & Nawaz, 2019), remittance (Acharya & Leon-Gonzalez, 2012;Acosta et al, 2008;Adams, 1989;Barham & Boucher, 1998;Shams & Kadow, 2020;Taylor & Wyatt, 1996;Zhu & Luo, 2008) and ODA (Chong et al, 2009;Younsi et al, 2019). As the data of foreign capital inflows in T&G sector are not available separately, we took the total foreign capital inflows in the country.…”

Distributional effects of foreign versus domestic investment: Evidence from post-communist EU member states

“…In line with Blundell and Bond (2000), we adopt the one-step system GMM over the difference GMM method to carry out the estimations, as it provides better results in case of unbalanced panels, highly persistence of the lagged depended variable, and small sample size. The choice of GMM technique in our case is justified not only by data characteristics, but also by the literature on similar research (Horácio C. Faustino and Carim Vali 2013;Franco and Gerussi 2013;Herzer and Nunnenkamp 2013;Khan and Nawaz 2019;Peña-Miguel and Cuadrado-Ballesteros forthcoming).…”