The Role of Foreign Direct Investment in Shaping income Inequality in Developing Economies: A cross-country Analysis

Abstract

Income inequality represents a significant and enduring challenge facing many developing economies around the world. In this context, Foreign Direct Investment (FDI) has emerged as a key factor deserving careful examination. The globalization of markets and the increased mobility of capital have led to a surge in FDI inflows into developing countries. FDI flows into developing countries have surged in recent years, raising questions about their impact on income distribution. This study conducts a cross-country analysis to unravel the intricate relationship between FDI and income inequality. This research aimed to investigate the relationship between Foreign Direct Investment (FDI) and income inequality in a diverse set of developing economies while exploring regional variations in this relationship. The study findings indicate a significant positive correlation between FDI and income inequality, underscoring the need for policymakers to consider the distributional consequences of FDI. Additionally, the analysis reveals that the impact of FDI on income inequality varies across different regions within developing economies, emphasizing the importance of tailored policy approaches. This research contributes to a deeper understanding of the complex FDI-income inequality nexus and calls for future studies to delve into the underlying mechanisms and propose evidence-based policy interventions. Ultimately, this work encourages scholars and policymakers to address the pressing global challenge of income inequality and leverage FDI as a tool for more equitable economic development in developing economies.