Impact of foreign direct investment on income inequality: Evidence from selected Asian economies

Abstract

The United Nations lists 17 Sustainable Development Goals for Agenda 2030, one of which is SDG-10, which focuses on eradicating inequality and addressing critical regional and global challenges. The fight against income inequality is heavily dependent on foreign direct investment all over the world. In this connection, the present study aimed to investigate the individual and interactive impact of foreign direct investment, human capital, and economic growth on income inequality by employing the interactive model. Based on the panel data set covering ten counties spanning each region of Asia from 1990 to 2020. In light of the slope homogeneity, cross-sectional dependency tests, and Westerlund co-integration test, we discover that all of the variables are cointegrated over the long run. A cross-sectional IPS (CIPS) unit root test is employed to check stationarity. Additionally, the study used the Augmented Mean Group (AMG) approach to produce accurate results in estimation. The results confirm that FDI affects inequality negatively. However, the impact of FDI is more effective in the presence of human capital. It means that human capital deepens the effect of FDI on inequality; the country will be more effective in reducing inequality by having a higher level of human capital and consider it a more powerful tool to bring equality. To reduce inequality, it is suggested that a policy mix of FDI and HC could be made.