Foreign Direct Investment, Inequality, and Growth
42 Pages Posted: 6 Dec 2005
Date Written: 2005
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: Suggested Citation