A revision on the effect of FDI on inequality-adjusted human development index
Main Article Content
Abstract
Inequality-adjusted Human Development Index (IHDI) is a new measurement of human development (HD) designed by the UNDP which addresses a renowned shortcoming of the previously used Human Development Index (HDI), which is inequality in distribution of human development achievements. Despite its advantages, this new approach has not been fully integrated into studies relating to the human development field, especially as far as FDI is concerned. FDI is an important factor affecting human development. Studies on the impact of these financial inflows on human development have only used HDI as a HD proxy. Using a panel data of 106 countries from the database of World Bank over the period of 2010 - 2015, our paper offers new understanding on how FDI affects HD with inequality being taken care of using IHDI. We find that FDI significantly and negatively affects human development. When samples of countries separated by continents are taken into account, the effects of FDI are different. Institutional quality index is found to have no notable contribution to human development. Several sub-indices, however, do positively and significantly affect human development. Regarding inequality, our findings confirm that FDI inflows widen the gaps in income, especially among countries in Asia. Regarding different aspects of IHDI, FDI contributes to increase life expectancy but reduce income of people in Latin America and Caribbe.
Article Details
Keywords
Foreign Direct Investment, Inequality-adjusted Human Development Index
References
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42. Mah, J. S. (2002). The impact of globalization on income distribution: the Korean experience. Applied Economics Letters, 9(15),1007-1009.
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45. Mughal, M. Vechiu, N. (2009). Does FDI promote higher education? Evidence from developing countries.
46. Narender & Dhankar, R. S. (2015). Foreign Capital Inflows and Growth of Employment In India: An Empirical Evidence from Public and Private Sector. International Journal of Economics and Finance, 8(2), ISSN 1916-971X.
47. Reuveny, R. & Li, Q. (2003). Economic openness, democracy and income inequality: An empirical analysis. Comparative Political Studies, 36(5): 575-601.
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49. Sharma, B., Gani, A. (2004). The effects of foreign direct investment on human development. Global economy journal, 4(2), 9-9.
50. Santosa, W. (2014). Analysis of the impact of Foreign direct investment on Social development in Indonesia and other ASEAN countries. In: UNIVERSITY, T. (ed.).
51. Tamer, C. R. (2013). The Effects of Foreign Direct Investment and Official Development Assistance on the Human Development Index in Africa. University of Massachusetts Boston, Graduate Theses and Dissertations.
52. Tsai, P. L. (1995). Foreign direct investment and income inequality: Further evidence. World Development, Elsevier, 23(3), 469-483.
53. Taylor, K. , Driffield, N. (2005). Wage inequality and the role of multinationals : evidence from UK panel data. Labour Economics, 12(2), 223-249.
54. Te Velde, D.W., Morrissey, O. (2001). Foreign ownership and wages: Evidence from five African countries. CREDIT Research Paper, (01/19), Centre for Research in Ecomonic Development and International Trade, University of Nottingham.
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59. Ucal, M., Bilgin, M. H., & Haug, A. A. (2014). Income Inequality and FDI: Evidence with Turkish Data. Economics Discussion Papers Series (1407), University of Otago.
60. Waldkirch, A., Nunnenkamp, P., Bremont, J. E. A. (2009). Employment Effects of FDI in Mexico’s.
61. Wei, Y. (2013). The effect of FDI on employment in China. Iowa State University. Graduate Theses and Dissertations.
62. Yildirim, D. C., Tosuner, O. (2014). The Effects of FDI on Human Capital Stock in Central Asian Turkic Republics. Eurasian Journal of Business and Economics, 7 (14), 51-60.
2. Alsan, M., Bloom, D. E, & Canning, D. (2006). The Effect of Population Health on Foreign Direct Investment Inflows to Low- and Middle-Income Countries. World Development 34(4), 613-630.
3. Abor, J., Harvey, S. K. (2008). Foreign direct investment and employment: host country experience. Macroeconomics and Finance in Emerging Market Economies 1(2).
4. Akin, M. S., and Vlad, V. (2011). The Relationship Between Education and Foreign Direct Investment: Testing the Inverse U- shape. European Journal of Economic and Political Studies, 4(1), 27 - 46.
5. Agénor, P.- R., Moreno-Dodson, B. (2006). Public Infrastructure and Growth: New Channels and Policy Implications. World Bank. Policy Research Working Paper, (4064).
6. Basu, P., Guariglia, A. & HY, D. (2007). FDI, Inequality and Growth. Journal of Macroeconomics, 29(4), 824-839.
7. Bhandari, B. (2007). Effect of Inward Foreign Direct Investment on Income Inequality in Transition Countries. Journal of Economic Integration, 22(4), 888-928.
8. Bircan, C. (2011). Foreign Direct Investment and Wages: Does the Level of Ownership Matter? The University of Michigan, Discussion Paper No. 618.
9. Borensztein, E., De Gregorio, J., & Lee, J. W. (1995). How Does Foreign Direct Investment Affect Economic Growth? Journal of International Economics, 45, 115135.
10. Brown, D. K., Deardorff, A. & Stern, R. 2004. The effects of multinational production on wages and working conditions in developing countries: Challenges to globalization Analyzing the economics. University of Chicago Press, ISBN: 0-262-03615-4.
11. Cao, T.H.V., Trinh, Q.L., & Nguyen, T.A.L. (2017). The effect of FDI on Inequalityadjusted HDI (IHDI) in Asian countries. Vietnam Economist Annual Meeting 10th.
12. Colen, L., Maertens, M. & Swinnen, J. (2009). Foreign direct investment as an engine for economic growth and human development: a review of the arguments and empirical evidence. Hum. Rts. & Int’l Legal Discourse, 3, 177.
13. Choi, C. (2006). Does foreign direct investment affect domestic income inequality?. Applied Economics Letters, 13(12), 811-814.
14. Curtis, T., Rhoades, D. L., & Griffin, T. (2013). Effects of Global Competitiveness, Human Development, and Corruption on Inward Foreign Direct Investment. Review of Business, 34(1).
15. Cragwell, R. (2006). Foreign Direct Investment and Employment in the English and Dutch-Speaking Caribbean. ILO Subregional Office for the Caribbean.
16. Chakraborty, D., Mukherjee, J. (2016). Trade, Investment and Economic Development in Asia Empirical and policy issues. Routledge.
17. Dehshiri, H. M., Sameti, Morteza & Sameti, Majid. (2012). Impact of Human Development Index and Rule of Law to Attract Foreign Direct Investment in Selected Developing Countries. MPRA, (81479).
18. Das, S. (2017). Foreign Direct Investment and its Determinants: A Study on India and Brazil. International Journal of Business and Management Invention, 6 (1), 62-69.
19. Dollar, D., Kraay, A. (2002). Growth is Good for the Poor. Journal of Economic Growth, 7(3), 195–225.
20. De Groot, O. 2014. Foreign direct investment and welfare. Serie Desarrollo Productivo, (196), 35.
21. Egger, H., Egger, P., Falkinger, J. & Grossmann, V. (2005). International Capital Market Integration, Educational Choice and Economic Growth. IZA Discussion Paper, (1863).
22. Eskeland, G. S. & Harrison, A. E. 2003. Moving to greener pastures? Multinationals and the pollution haven hypothesis. Journal of development economics, 70(1), 1-23.
23. Figini, P., Görg, H. (1999). Multinational Companies and Wage Inequality in the Host Country: The Case of Ireland. Trinity Economic Paper Series, Technical Paper, (98/16).
24. Figini, P., Görg, H. (2011). Does foreign direct investment affect wage inequality? An empirical investigation. The World Economy, 34, 1455-1475.
25. Feenstra, R. C., Hanson, G. H.. (1995). Foreign Direct Investment And Relative Wages: Evidence From Mexico’s Maquiladoras. Journal of International Economics, 42, 371–394.
26. Feenstra, R.C. and G.H. Hanson, 1996, Foreign investment, outsourcing and relative wages, in: R.C. Feenstra, G.M. Grossman and D.A. Irwin, eds., Political economy of trade policy: essays in honor of Jagdish Bhagwati (MIT Press, Cambridge) 89–127.
27. Gökmenoğlu, K. K., Apinran, M. O., Taşpinar, N. (2018). Impact of Foreign Direct Investment on Human Development Index in Nigeria. Business and Economics Research Journal, 9 (1), 1-13, ISSN: 1309-2448.
28. Gohou, G., Soumaré, I (2010). Does Foreign Direct Investment Reduce Poverty in Africa and are There Regional Differences? World Development, 40(1), 75-95.
29. Habib, M. D., Sarwar, S. (2013). Impact of Foreign Direct Investment on Employment Level in Pakistan: A Time Series Analysis. Journal of Law, Policy an Globalization, (10), ISSN 2224 – 3240.
30. Herzer, D., Nunnenkamp, P. (2011). FDI and Income Inequality: Evidence from Europe. Kiel Working Paper, (1675).
31. Herzer, D., Hühne, P., Nunnenkamp, P. (2012). FDI and Income Inequality - Evidence from Latin American Economies. Kiel Working Paper, (1791).
32. Hung, T. T. (2005). Impacts of Foreign Direct Investment on Poverty Reduction in Vietnam. IDS Program, GRIPS.
33. Javorcik, B. (2012). Does FDI Bring Good Jobs to Host Countries?. Background Paper for the World Development Report 2013. World Bank.
34. Kurtishi-Kastrati, S. 2013. The effects of foreign direct investments for host country’s economy. European Journal of Interdisciplinary Studies, 5, 26.
35. Kuznets, S. (1955). Economic Growth and Income Inequality. The American Economic Review, 45(1), 1-28.
36. Karlsson, S., Lundin, N., Sjöholm, F. & He, P. (2007). FDI and Job Creation in China. IFN Working Paper.
37. Lwanda, G.C. (2006). Nepad and HIV/Aids: The contribution of South African multinationalcompanies to the continental fight. South African Institute of InternationalAffairs (SAIIA), Report 50.
38. Lessmann, C. (2012). Foreign direct investment and regional inequality: A panel data analysis. China Economic Review, 24, 129-149.
39. Lipsey, R. E., Sjoholm, F. (2001). Foreign Direct Investment and Wages in Indonesian Manufacturing. NBER Working Paper, (8299).
40. Mai, P. H. (2004). FDI and development in Vietnam: policy implications. Institute of Southeast Asian Studies.
41. Makki, S. S., Somwaru, A. (2004). Impact of foreign direct investment and trade on economic growth: Evidence from developing countries. American Journal of Agricultural Economics, 86 (3), 795-801.
42. Mah, J. S. (2002). The impact of globalization on income distribution: the Korean experience. Applied Economics Letters, 9(15),1007-1009.
43. Mpanju, A. K. (2012). Zenith International Journal of Business Economics & Management Research, 2(1), ISSN 2249 8826.
44. Mihaylova, S. (2015). Foreign direct investment and income inequality in Central and Eastern Europe. Theoretical and Applied Economics, 22(2) Summer: 23-42.
45. Mughal, M. Vechiu, N. (2009). Does FDI promote higher education? Evidence from developing countries.
46. Narender & Dhankar, R. S. (2015). Foreign Capital Inflows and Growth of Employment In India: An Empirical Evidence from Public and Private Sector. International Journal of Economics and Finance, 8(2), ISSN 1916-971X.
47. Reuveny, R. & Li, Q. (2003). Economic openness, democracy and income inequality: An empirical analysis. Comparative Political Studies, 36(5): 575-601.
48. Reiter, S.L. & Steensma, H. Kevin, (2010). Human Development and Foreign Direct Investment in Developing Countries: The Influence of FDI Policy and Corruption. World Development, Elsevier, 38(12), 1678-1691.
49. Sharma, B., Gani, A. (2004). The effects of foreign direct investment on human development. Global economy journal, 4(2), 9-9.
50. Santosa, W. (2014). Analysis of the impact of Foreign direct investment on Social development in Indonesia and other ASEAN countries. In: UNIVERSITY, T. (ed.).
51. Tamer, C. R. (2013). The Effects of Foreign Direct Investment and Official Development Assistance on the Human Development Index in Africa. University of Massachusetts Boston, Graduate Theses and Dissertations.
52. Tsai, P. L. (1995). Foreign direct investment and income inequality: Further evidence. World Development, Elsevier, 23(3), 469-483.
53. Taylor, K. , Driffield, N. (2005). Wage inequality and the role of multinationals : evidence from UK panel data. Labour Economics, 12(2), 223-249.
54. Te Velde, D.W., Morrissey, O. (2001). Foreign ownership and wages: Evidence from five African countries. CREDIT Research Paper, (01/19), Centre for Research in Ecomonic Development and International Trade, University of Nottingham.
55. Te Velde, D.W. (2003). Foreign direct investment and income inequality in Latin America: Experiences and policy implciations. Overseas Development Institute.
56. United Nations Industrial Development Organization (UNIDO) & Vietnam Ministry of Planning and Investment. (2012). Viet Nam Industrial Investment Report 2011: Understanding the impact of foreign direct investment on industrial development.
57. United Nations Development Programme (2018), http://hdr.undp.org/en/content/ inequality-adjusted-human-development-index-ihdi (accessed on 10 October 2018).
58. Utouh, H. M. L., Rao, M. K. (2016). Foreign Direct Investment (FDI) and its impact on employment creation: the case of manufacturing sector in Tanzania. journalijcir. com, ISSN: 2395 -5775.
59. Ucal, M., Bilgin, M. H., & Haug, A. A. (2014). Income Inequality and FDI: Evidence with Turkish Data. Economics Discussion Papers Series (1407), University of Otago.
60. Waldkirch, A., Nunnenkamp, P., Bremont, J. E. A. (2009). Employment Effects of FDI in Mexico’s.
61. Wei, Y. (2013). The effect of FDI on employment in China. Iowa State University. Graduate Theses and Dissertations.
62. Yildirim, D. C., Tosuner, O. (2014). The Effects of FDI on Human Capital Stock in Central Asian Turkic Republics. Eurasian Journal of Business and Economics, 7 (14), 51-60.