Foreign Direct Investment, Inequality, and Growth

42 Pages Posted: 6 Dec 2005

See all articles by Parantap Basu

Parantap Basu

Durham University - Department of Economics and Finance

Alessandra Guariglia

Durham University - Durham Business School

Date Written: 2005

Abstract

This paper examines the interactions between Foreign Direct Investment (FDI), inequality, and growth, both from an empirical and a theoretical point of view. Using a panel of 119 developing countries, we observe that FDI promotes both inequality and growth, and tends to reduce the share of agriculture to GDP in the recipient country. We than set up a growth model of a dual economy in which the traditional (agricultural) sector uses a diminishing returns technology, while FDI is the engine of growth in the modern (industrial) sector. The main predictions of the model are consistent with the stylized facts observed in the data.

Keywords: O1, F43

JEL Classification: Foreign direct investment, inequality, growth

Suggested Citation

Basu, Parantap and Guariglia, Alessandra, Foreign Direct Investment, Inequality, and Growth (2005). Available at SSRN: https://ssrn.com/abstract=864144 or http://dx.doi.org/10.2139/ssrn.864144

Parantap Basu (Contact Author)

Durham University - Department of Economics and Finance ( email )

Durham, DH1 3HY
United Kingdom

Alessandra Guariglia

Durham University - Durham Business School ( email )

Durham Business School
Mill Hill Lane
Durham, DH1 3LB
United Kingdom

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