The Effect of FDI on Income Distribution in Developing Countries; With an Emphasis on Iran

Authors

1 Assistant professor, Faculty of Economics, University of Kurdistan

2 M.A. of Economics, University of Kurdistan

Abstract

The gap between national savings and investment demands prompts necessity for foreign direct investment among many developing countries to achieve macro-economic goals. In these countries, along with capital shortages there also exist a massive misdistribution of income. This paper studies the impact of foreign direct investment on income distribution in developing countries using a dynamic panel method for the period 1990-2014. Moreover, for Iran’s economy, the long-run relationships between variables are tested using ARDL method for the period 1981-2015, the results of which give even more support to the accuracy of findings in the panel data method. The findings of this study indicate a significant and positive impact of FDI on Gini coefficient. In addition, Kuznets hypothesis in nonlinear model in the upper middle income countries was confirmed but in the lower middle income countries has not been achieved. Variables such as government expenditure and the GDP growth in the upper middle income countries has significant positive effect on Gini coefficient and also tax, employment and trade openness have improved income distribution. Policy recommendations have thereof prescribed.

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